There are lots of foreclosures out there, and it is tempting to wonder if one of them could be your next home. It raises the question: do foreclosure homes sell for a bargain price?
Does supply and demand come into play here as there are many foreclosures happening? A report from a foreclosure listing service indicates that foreclosures were up 94% from the same period last year.
This is not breaking news to any of us; the disaster has been widely reported, however figures such as a 94% increase are still quite shocking and really serve to reinforce the tragedy and its consequences. One of the consequences may be that as a prospective home buyer you may find a home you can afford.
However, it is not as easy as it sounds. Many of these homes are offered with a ‘foreclosure’ discount, it is true. (Usually, the more foreclosed homes on offer then the larger the discount). Perhaps the biggest problem you may have to overcome is the fact that the family who have lost the home may still be living in it.
These homes are usually sold at auctions to the highest bidder offering above the debt owing. If the lender is selling it as an REO (real estate owned) then you will be dealing directly with him. If you work with an experienced realtor or a foreclosure specialist, you can avoid problems and you will find that there are many bargains out there.
Beware of the type of mortgage referred to as toxic; this is often a plan with no down payment deposit and paying off the interest only. Choose a reliable lender and consider a fixed rate that you know you can afford to pay.
So, if you can bring it all together and buy a home, what happens if the family are still living there, in effect – squatting.
Usually when a home comes up for foreclosure, the sad truth is that the family have usually run themselves into the ground trying to keep their home. They often have no money and no place to live; it can be very upsetting for you to enforce their leaving the property.
There are companies who will look after this type of task if you do not have the heart for it yourself. If you feel you may need to do this, you will have to allow in your budget for a bailiff’s services.
You may be lucky and buy a home that is not occupied. If you are not, I would advise that you pay the professionals. Trying to take care of the emotional disaster of a family unwillingly moving out, could really mar the pleasure of a new home for you.
However, it is a wise business move to buy when the market is low and with professional help you can be guided you through the process so that you can avoid any pitfalls.
So is it possible to provide a win for everyone, by buying the place & renting it back to the former owner?
You get a property at a discount price, providing you with equity & hopefully long term growth. You charge them market rent, which is generally quite a bit less than the total cost of ownership. Do you guys get tax breaks on the ongoing costs & interest payments, like we do? And the family gets to stay in “their” home & maintain some dignity.
No, you haven’t oversimplified it at all. In the U.S. we get all kinds of tax breaks for ownership and rental properties. The tricky part here, is attempting to give the owner a little cash for the sale. Since they are in foreclosure, the money belongs to the bank. There are some loop holes, but they require careful navigation.
OK, not necessarily talking about getting them some cash out of the deal, more like keeping the roof over their heads at a price they can afford. I guess my line of question has to do with how much of a bargain you are getting, how much it will appreciate over time (combined with how much you will need to sink into it to have it appreciate faster), versus how much rental income the tenant can afford to pay & how long they can handle occasional rent increases. Of course, the answers to these would require some reasonably complex arithmetic, but the question is more of an ethical one: Is it do-able?
4 posts, 3 voices
skibum writes, Feb 15, 2008: (1 post)
interesting article i came across
There are lots of foreclosures out there, and it is tempting to wonder if one of them could be your next home. It raises the question: do foreclosure homes sell for a bargain price?
Does supply and demand come into play here as there are many foreclosures happening? A report from a foreclosure listing service indicates that foreclosures were up 94% from the same period last year.
This is not breaking news to any of us; the disaster has been widely reported, however figures such as a 94% increase are still quite shocking and really serve to reinforce the tragedy and its consequences. One of the consequences may be that as a prospective home buyer you may find a home you can afford.
However, it is not as easy as it sounds. Many of these homes are offered with a ‘foreclosure’ discount, it is true. (Usually, the more foreclosed homes on offer then the larger the discount). Perhaps the biggest problem you may have to overcome is the fact that the family who have lost the home may still be living in it.
These homes are usually sold at auctions to the highest bidder offering above the debt owing. If the lender is selling it as an REO (real estate owned) then you will be dealing directly with him. If you work with an experienced realtor or a foreclosure specialist, you can avoid problems and you will find that there are many bargains out there.
Beware of the type of mortgage referred to as toxic; this is often a plan with no down payment deposit and paying off the interest only. Choose a reliable lender and consider a fixed rate that you know you can afford to pay.
So, if you can bring it all together and buy a home, what happens if the family are still living there, in effect – squatting.
Usually when a home comes up for foreclosure, the sad truth is that the family have usually run themselves into the ground trying to keep their home. They often have no money and no place to live; it can be very upsetting for you to enforce their leaving the property.
There are companies who will look after this type of task if you do not have the heart for it yourself. If you feel you may need to do this, you will have to allow in your budget for a bailiff’s services.
You may be lucky and buy a home that is not occupied. If you are not, I would advise that you pay the professionals. Trying to take care of the emotional disaster of a family unwillingly moving out, could really mar the pleasure of a new home for you.
However, it is a wise business move to buy when the market is low and with professional help you can be guided you through the process so that you can avoid any pitfalls.
AussieRodney writes, Mar 27, 2008: (6 posts)
So is it possible to provide a win for everyone, by buying the place & renting it back to the former owner?
You get a property at a discount price, providing you with equity & hopefully long term growth. You charge them market rent, which is generally quite a bit less than the total cost of ownership. Do you guys get tax breaks on the ongoing costs & interest payments, like we do? And the family gets to stay in “their” home & maintain some dignity.
Or have I over-simplified the issue?
luisest writes, Mar 28, 2008: (6 posts)
No, you haven’t oversimplified it at all. In the U.S. we get all kinds of tax breaks for ownership and rental properties. The tricky part here, is attempting to give the owner a little cash for the sale. Since they are in foreclosure, the money belongs to the bank. There are some loop holes, but they require careful navigation.
AussieRodney writes, Apr 23, 2008: (6 posts)
OK, not necessarily talking about getting them some cash out of the deal, more like keeping the roof over their heads at a price they can afford. I guess my line of question has to do with how much of a bargain you are getting, how much it will appreciate over time (combined with how much you will need to sink into it to have it appreciate faster), versus how much rental income the tenant can afford to pay & how long they can handle occasional rent increases. Of course, the answers to these would require some reasonably complex arithmetic, but the question is more of an ethical one: Is it do-able?