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Three Red Flags to Watch for when Buying Foreclosed Real Estate

June 20, 2014 By admin

Buying foreclosed real estate can be an affordable way to realize a dream. For some people, that dream is turning cheap real estate listings into a new business, while for others it’s all about finding someplace to start a family. With CNN reporting that there are more than 9.3 million real estate foreclosures in the States available for purchase, many of which can be had at a 20% discount, there is really no better time to take advantage of homes for sale.

However, as with purchasing any other type of property, buying foreclosed real estate is not without its risks. Low prices can quickly turn into huge bills, and “as is” can mean “get ready to pump a lot of money into this property.” In other words, you need to learn to look for the warning signs that separate a smart purchase from a lemon.

 

What to Be Wary of when Buying Foreclosed Real Estate

1. “As is,” “Cash Only,” and Other Code Words

Property that is advertised with an “as is” or “cash only” tag should send up an immediate red flag. The Motley Fool, a popular website on all things financial, writes that foreclosures with these tags are generally in bad enough condition that the owners can neither afford to fix up problems that will become your responsibility in the sale, or finance the home through a bank. In other words, they’re toxic.

2. A Price That’s Too Good to Be True

When perusing listings for foreclosed property, you should expect lower asking prices. After all, banks and other lending institutions are trying to offload properties that are costing them money. That being said, there is a limit to how low the price should go, as U.S. News and World Report suggests. As a general rule, you’ll want to add 10% to any asking price for repairs and remodeling on any property you’re considering, but when the asking price is especially low, you need to ask yourself why. More likely than not, the property is in bad enough shape that you’re going to buy low but end up tagging on a bigger price tag than you’d like to rehab the space

3. Why Isn’t the Real Estate Foreclosure Open to Inspection?

“Not open to inspection” is a dead giveaway that you’re about to buy something in especially rough shape. Consider, according to Scarborough Research, 54% of homeowners who have remodeled their homes in the last year did so to increase the chances of their homes selling. Most homeowners will paint their homes, mow their lawns, and redo the landscaping in order to improve curb appeal. In other words, they know that people are going to want to inspect their homes before making a purchase. Homes that aren’t open to inspection cut out one of the most integral parts of buying a home wisely. Avoid them.

 

Knowing what to look for when buying foreclosed real estate can put you on the road to what you’ve always dreamed of. If you’re still unsure how to find the best home that can only result in a positive life change, consider the services of professional realtors. Realtors are educated on both market conditions and what to keep an eye out for when buying a foreclosed home. However you do it, just be smart about buying any foreclosed properties.

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