Should I buy a foreclosure home?
“Hello Gary. I’ve learned a lot from reading your newsletters and I was wondering….do you deal with foreclosure homes at all? If you do, what are the advantages and disadvantages of buying a foreclosure compared to a regularly listed home on the market?”
***ANSWER:
In Southern California, foreclosures are the “holy grail” of real estate investing that people pursue for months or years. As it’s so hard to actually get one at a good price, the vast majority of foreclosure-seekers realize this and eventually give up.
BTW, A resource we developed for finding great deals is ANDRE, our Automated Notification of Distressed Real Estate http://www.sandiegorealestateinsider.com/andre.htm
Nevertheless, if you’re still interested, let me explain the 3 stages of foreclosure, along with their pro’s and con’s for investors:
1. Pre-Foreclosure
When an owner falls behind on their mortgage, the lender starts foreclosure by filing a “Notice of Default”. As this notice is public record, these owners get inundated by mail, phone calls, and unannounced visits by aggressive investors, lenders, and agents.
Advantage: Potential good price if you’re extremely lucky and/or ruthless and aggressive.
Disadvantage: Heavy competition. Very low percentage. Generally must be ruthless and aggressive to get a “good deal”
2. Foreclosure
The actual foreclosure occurs at the trustee’s sale or auction. Most buyers at foreclosure sales are sophisticated and well-heeled investors.
Advantage: Can get a good price.
Disadvantage: Savvy competition. Must pay all cash, possible legal and title risks, can’t see interior of property prior to auction.
3. Post-Foreclosure
If no one bids at the auction, the lender gets the property. These are then called R.E.O. (Real Estate Owned by the lender) properties. Banks do NOT like to own R.E.O.’s, so a few will deal a little to get them off their books.
Advantage: Can occasionally get a good price or attractive financing.
Disadvantage: Heavy competition. Currently there are virtually ZERO San Diego R.E.O.s.
Conclusion:
There are just WAY too many people chasing WAY too few foreclosures. In fact, I’m a real estate investor and in 21 years I’ve bought all of one foreclosure property, a “pre-foreclosure.”
Unless you want to waste a lot of your valuable time, I’d focus on having a skilled agent find you a home or investment. You may want to call us at (858)457-KENT, as we often find our clients properties that are NOT listed on the multiple listing service.
