Tuesday, March 31, 2009

Foreclosures Are Mostly NOT Good Deals

Many people believe that foreclosures equal good deals and that good deals can be had by searching a market only for foreclosures. Nothing could be more wrong in our experience, especially in and around Houston, where most foreclosures are some of the worst deals on the market.

We have found that foreclosures, while they may look okay in photos or on the outside, most often a) need more work than an occupant can take on, b) require expertise and cash beyond what a homestead buyer normally has, and c) are often anything BUT good deals in the end.

The most effective way to find a good deal is simply to look in good neighborhoods for low prices and then figure out why the price may be low. An elderly person may be moving to elder care, it could be an estate sale, someone may just need to move quickly, perhaps a house needs updating that most will not want to do but you don't mind doing in time, etc.

Foreclosures per se are not good deals.

And don't rely on foreclosure "specialists" or workshops or special public auctions or lists you have to pay for. Remember also that almost any property can look good in a photo (think "online dating"). Nobody gets all good listings and nobody corners a market, so using the Multiple Listing Service in an area is still the best and most comprehensive way to search for prospective properties.

Some firms like mine only do foreclosures with investors. That way, we know the investor knows what they're getting into (foreclosures are riskier deals than traditional resale/new) and typically will not encounter underwriting issues and can accommodate the bureaucracy involved -- another huge disincentive for homestead buyers -- the timing can vary wildly from expectations on foreclosures and there's really nothing you can do.

Why are foreclosures often rotten deals? Well that's a trip down the rabbit hole we'll save for another time. Just know foreclosures often equal "beasts." Finding good deals takes standard old fashioned knowledgeable research and professional advice.