Tips for Buying a Foreclosure

Buying a foreclosure is can be a great opportunity to homeowners. Foreclosed properties are inexpensive and widely available. To renters, foreclosed properties can be an affordable path to home ownership. For more established home owners, it can be an opportunity to earn extra income by renting it out. Community organizations can use them to help the needy. Buying a foreclosure does have some potential problems, but so long as the prospective buyers can navigate them, they should be able to manage just fine.

Examine the Area

As with any other home purchases, buyers need to examine the neighborhood where the foreclosed property is located. They need to make sure that a property is located in a community they would want to live in, or, if they want to rent it out, what kind of tenants they would get. Some of the things they may want to consider include:

Crime rates - Total and per-capita rates in the property's nearest vicinity and in the neighborhood in general. They should also look at which types of crimes are the most common.

Commuter access - Includes roads, highways, bike paths and public transit options.

Retail options - How many stores are in the property's vicinity and what do they sell. Buyers should make sure to check for grocery stores, supply stores and pharmacies.

Availability of social services - This includes fire departments, police departments, hospitals, schools, public parks and community centers.

Foreclosure and vacancy rates - This includes neighborhood totals and the totals for the block the house is located in. Buyers should also check the houses in the immediate vicinity.

Population trends - Is the neighborhood population growing, shrinking or stable? Buyers should see if the current population patterns were recent developments or parts of the long-term trend. If it's the former, the trends are more likely to change for the better once the economy improves.

Check the Foreclosure for Damage

Buyers have many foreclosures to choose from, and not all of them are in ideal condition. The longer they have been foreclosed, the more they vulnerable they are to damage. This includes.

Natural damage - Without constant maintenance and care, the property and everything inside it deteriorates. Appliances fail, vents and gutters get clogged, water drips into the basement, mold develops and grows, wild animals make their home inside the building, etc. A strong storm can send tree branches and other large objects hurdling into a house, causing all sorts of damage. Windows are particularly vulnerable.

Manmade damage - This can include anything from graffiti to vandalism. Thieves may break into the house and strip it of anything they can carry. Even if they don't find anything useful, break-ins can damage the locks and hinges.

This is why buyers should check foreclosed properties they want to buy before they make the purchase. If possible, they should get professional inspectors to examine every aspect of the property in detail. They would be able to find damage in places that the prospective homeowners may not have considered and estimate how much the repairs would cost.

Watch Out for Squatters

Empty buildings tend to attract squatters, especially if they are in good condition. Contrary to popular beliefs, this isn't limited to lower-income neighborhoods. In some cases, they are able to pass themselves off as legitimate homeowners, leaving neighbors and local authorities none the wiser. There have also been cases where original homeowners and/or renters simply never left.

If buyers found that one of the properties they are considering has squatters, they may be better off contacting the police and look at other options. Otherwise, they may wind up mired in a prolonged legal fight that could cost far more than the house was originally worth.

Consider Personal Expenses

When buying a foreclosure, buyers should make sure they don't wind up foreclosing on the property themselves. They should look at the finances and see if they can afford the mortgage payments, day-to-day maintenance, home improvement costs and the more heavy-duty repairs. If the buyers are looking to rent it out, they should calculate to see if the rents they are planning to change will be enough to cover property-related expenses and bring profit. They should also factor in local property taxes and their monthly income. Finally, they should consider how much money they can afford to set aside for a rainy day. After all, if they lose their jobs, they may not be able to afford to keep the house unless they save in advance.