The following video (1:30 minutes) is about what is arguably the greatest potential pitfall for a homebuyer when purchasing a foreclosed home. Many foreclosed properties need substantial and expensive work to get back into livable condition.
The following is the transcript of the video above about the biggest potential pitfall of buying a foreclosure property.
Rick: We’re going to have to take another break, but before we do, we’ll make it difficult for you. In a minute, or a minute and a half, explain the major pitfalls of buying a foreclosed property. A lot of people think that’s a great way to go and it really – for most buyers who want an owner-occupy property – it isn’t the way to go.
Rich: I can tell you in my experience the biggest pitfall is they’re really not worth what people are paying for them. There’s this idea out there that, “It’s a foreclosure. It must be a good deal.” In my experience the amount of work that most of these properties need, it’s not worth it.
Rick: You need very deep pockets to do it.
Rich: What I always say to people is a house might be in a $400,000 neighborhood, and the foreclosure’s listed for $350, and people say, “Look, we’re in a $400,000 neighborhood. That house sold for 4. That house sold for 4. This house is listed for $350.” Then you go in there, and I start pointing out to them, “That needs to be replaced, and that needs to be replaced, and now we’ve got $70,000 worth of work to do,” and so now you’re not really getting a deal. They’re thinking, “I have 50,000 in appreciation right off the bat,” but in fact they’re probably behind the 8 ball by the time they do the work. The other thing I tell clients, "it doesn’t matter how good of a deal you get. If you don't have the cash to do the work, you’re going to be living in a house you hate forever."