- Foreclosed property remains in the hands of the lien holder--the entity that owns the deed to the house. Banks and other lenders are rarely structured to own real estate in any great quantity, so foreclosed properties are considered assets in distress. They often sell for far less than they would otherwise, making foreclosed property a potentially great deal.
- Before purchasing foreclosed property, research the condition of both the building and the state of the area around it. Many foreclosures happen in waves, with entire neighborhoods entering into the process. As banks rarely have the time or staff to monitor the condition of their foreclosed properties, many of these buildings end up as temporary shelter for vagrants and other transients. The plumbing and electrical wire often end up stripped for scrap to be sold. As few people want to live in a neighborhood with many foreclosures, the long-term prospects for the price of the asset tend to be poor unless the foreclosure was an isolated incident.
- Many foreclosure auctions happen right on courthouse steps or over the Internet. It tends to be unusually easy to purchase foreclosed property because the institutions holding them want to get rid of the houses as quickly as they possibly can. As with any other asset, examine the property before putting money down. Consider hiring an independent contractor to look at the house to capitalize on the savings that you will make by purchasing a property in foreclosure.
- People who purchase a foreclosed property are also eligible for a $7,000 tax credit as of the passage of the Foreclosure Prevention Act of 2008. Unfortunately, the credit is split if a married couple buys the house, and can only be used if the home will be lived in as a primary residence for two years. Still, this can make purchasing a foreclosed home actually profitable in many markets where foreclosed houses are selling for much less than that amount.
- When researching foreclosed property in a particular area, investors benefit from extrapolating what the future will look like based on continuing trends. If foreclosures are increasing in a particular area and foreclosed inventory has been remaining constant, it's a strong indicator that prices are on their way down. In an environment with growing foreclosure numbers, it can be wise to wait longer for even lower prices. Track foreclosure numbers in your area over time at a listing site like Foreclosure, linked below in the Resources section.
