26 Jan The Pros and Cons of Buying Foreclosed Property
Hi, mga higala! It’s time for another investment-related article in today’s edition of Acadeo!
Have you ever given serious thought to investing in foreclosed property? Many investment advisers and real estate investors would recommend buying properties that are in foreclosure because of their low prices and relatively faster transaction process.
That being said, purchasing foreclosed property has its advantages and disadvantages, just like with other properties. So what things should you be looking out for when investing in this type of real estate?
Let’s find out!
THE GOOD STUFF
A foreclosed property is when someone takes a loan to purchase a house for sale, for example. If the loanee isn’t able to pay or complete the loan according to the agreed terms, then the loaner – usually a bank or a housing financer like PAGIBIG – can claim the property the loan was used for.
Because of this, foreclosed homes, buildings, and other properties are often sold at a price much lower than if you’re buying them “brand new”. This is because, usually, the banks or government institutions selling them just want to get their money back from unpaid loans as quickly as possible. The low prices offered at auctions is meant to entice buyers who can pay right away for the properties.
Given that foreclosed properties are being sold off by banks and public institutions, the properties will have all the necessary paperwork legally required by the government, like titles and paid taxes. The transfer of ownership from the bank or institution to the buyer is also considerably faster, as all the paperwork is ready – transfers can even take only weeks compared to years for non-foreclosed properties.
Another benefit to foreclosed properties is that you can improve on the property and “flip” it – that is, improve it
THE BAD STUFF
There’s always the risk that the property you’re buying will be occupied by its previous occupants, who may have chosen not to vacate the property peacefully. Informal settlers may also be an issue if the property has been left empty by its previous owners. If the property isn’t residential, like a commercial building, there may be occupants who have outstanding good-faith leases with the previous owners, which must be legally honored.
Other than unexpected occupants, there is also the property itself. Foreclosed homes, lots, and buildings are sold in the state they were claimed by the bank or institution, which means there’s a possibility that you’ll have to spend extra to get it in order.
As an example, if the foreclosed property has extensive damage, you may end up spending more money to fix or rebuild it than what you’ll have spent to buy the property from the auction. Repairing the foreclosed property may also take some time to finish, especially if the damages to the property are extensive, like decayed infrastructure or outdated electrical wiring. With these kinds of repairs, it’s possible that you won’t be able to move into or lease your newly acquired property for some months, or even years.
Also, because foreclosed properties won’t provide much in terms of ideal locations. Foreclosed properties are bought “as is”, which usually means that you get the property in the state it was left in, as well as where it’s been built or located. For example, you may find a large property being auctioned at a very low price based on average market prices, but it may be located in undesirable locations, like a flooding-prone location, or too close to high-traffic roads and highways.
Foreclosed properties are, overall, a good way of investing in real estate without having to spend great amounts. However, it’s not without its own risks and disadvantages, and any person interested in buying foreclosed properties from auctions should make themselves aware of these things. There are benefits and advantages as well, of course, and if weighed effectively against the risks and disadvantages in a smart way, buying foreclosed properties can lead to a satisfying payoff.
Whether you decide to buy foreclosed properties or not, it’s good to know the pros and cons involved in this kind of investment, as it helps you make decisions for similar kinds of investments. Also, you never know what the future brings – you might find an opportunity to invest in such properties eventually.
We hope this helps you, and good luck!