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With the number of homes now in foreclosure many people, home buyers and investors alike are jumping to take advantage of the surge in inventory within the housing market. Of course there are plenty of houses for sale outside of foreclosures, however buying a foreclosed property can be a very good investment if you have considered all the risks. If you looking to purchase your first home, you can save a significant amount of cash by buying a foreclosed home. Before doing so, it is important to understand the pros and cons of purchasing a property that is in foreclosure.
Understand The Process
The United States and Canada share similar foreclosure proceedings however there are slight differences from state-to-state and different provinces. In Canada, there are two different procedures that dictate how foreclosures are processed. Judicial Sale refers to the procedure where the lender must petition the court for permission to sell property that is in default. British Columbia, Alberta, Saskatchewan, Manitoba and Quebec follow this procedure. Nova Scotia follows the same procedure, however it is called Mortgage Foreclosure, despite the fact the same proceedings must take place. The provinces of Newfoundland, Ontario, New Brunswick and Prince Edward Island follow the Power of Sale procedure. In this situation, the lender can sell the property without permission from the court as dictated by the terms of the mortgage.
In any event, when you buy a foreclosed property you are almost always dealing with the bank versus the homeowner. This should be considered as banks are generally unwilling to budge on price or conditions of sale. Where a seller might negotiate price or contribute to closing costs, a lender is just looking to get their money back with the least hassle. This could prove to be a deal breaker if you do not have the asking price readily available.
It is imperative when considering a foreclosed property to carefully inspect the house prior to submitting an offer. In order for a home to go into foreclosure, the owner must be behind in payments. In most cases this is due to some form of financial hardship which more than likely affected other financial responsibilities. The home may be in disrepair or need renovations to be habitable as a primary residence or for sale or rent to another individual. You might be getting a great deal on the purchase price, however if you have to invest a significant amount of cash to make the home livable, your investment becomes more risky. Another factor to consider is the location of the property. If the neighborhood is experiencing a downward trend, you are not likely to recoup your renovation investments. You can change out cabinets and flooring, but you can’t change location.
Know When To Seek Help
Unless you are a seasoned investor or have experience in the real estate industry, it is important to recognize when you need professional help. Buying a foreclosed property offers many benefits, however it is not the same as buying a home in the traditional manner. Foreclosure, pre-foreclosure and homes sold at auction all have different pros and cons that are readily understood by professionals. It is not simply an opportunity to buy a home at a discounted price, therefore know what you are getting into before whipping out your cheque book.
When the process of buying a foreclosed property is handles correctly, the opportunities can be endless. Many first time home buyers would otherwise not be able to afford getting their first place. In addition, savvy investors can turn a relatively quick profit if they have followed proper procedures in period of time prior to sale.