Foreclosure investment is one of the most lucrative areas of the real estate market. But that status also leads to many outlandish marketing claims, get-rich-quick strategies, and a tendency for misinformation and myth. Here are seven of the most popular misconceptions about foreclosures (provided by ForeclosedHomes), to help consumers separate fact from fiction:
- Foreclosures always provide high returns on your investment.
Foreclosure markets work like every other market, and are subject to supply and demand and pricing strategies. While it is true that a majority of foreclosures are sold at or below their wholesale values, it is possible to overpay for a foreclosure if you aren’t careful to assess the market value of a property. For example, many foreclosed properties have tax liens on them, and if you buy those properties you can become liable for paying back taxes which can add significantly to the bottom line price of the home.
- Foreclosed properties are in bad condition or undesirable locations.
We may be used to thinking of foreclosures as abandoned and neglected properties, but that is a myth. ForeclosedHomes foreclosure listings, for example, include homes in some of the most exclusive neighborhoods in America with prices in the millions of dollars. Upscale homeowners often overextend themselves – and sometimes their second homes, vacation properties, and posh mansions wind up in foreclosure.
And when banks and mortgage companies foreclose homes, great care is taken to maintain them in good condition. A foreclosed property is an asset for the lender, and may be the only way for the lender to get back the money loaned for a defaulted mortgage. So it is in the best interest of the lender to ensure that their foreclosures are in tip-top condition.
- Foreclosures can be bought for pennies on the dollar.
Once in a while a truly incredible deal comes along, and a buyer will stumble into a property and buy it for next to nothing. But the foreclosure markets are organized by professional buyers, sellers, lenders, and investors, so the chance to get a house for pennies on the dollar is unlikely. What does happen every day, however, is that foreclosed homes sell below market value. It is possible to make big profits in foreclosures, but it usually requires work, planning, and research.
- The lower the price, the higher the equity.
Low prices do not necessarily mean high equity. For example, if you find a home that was originally worth $150,000 and it is offered in foreclosure for $50,000, that does not necessarily mean that you will automatically get $100,000 in equity when you purchase it. There may be taxes, mechanic’s liens, and repairs to be done, and those will all add to the cost and subtract from the equity.
- Foreclosure investment is an easy way to get rich quick.
Investing in foreclosures normally requires careful and diligent house hunting and background research. ForeclosedHomes makes the whole process easier, but the notion that there are any realistic get rich quick schemes is a myth that has been around for centuries.
- Foreclosure buyers take unfair advantage of homeowners.
Many foreclosure buyers actually assist homeowners, by giving them money to pay their debts and avoid bankruptcy. And there are foreclosure investors who never even deal with homeowners, because they buy all of their properties from real estate brokers who represent banks and other mortgage lenders, long after the homeowner’s involvement was finished.
So the idea that buying foreclosures like those listed on ForeclosedHomes is unfair to homeowners is a myth. But it does have some basis in reality, because many homeowners who face foreclosure are preyed upon by con artists and unethical buyers who skirt the line between what is legal and illegal. (For more information about avoiding scams related to foreclosures, see the ForeclosedHomes database of real estate articles.
- Foreclosure investment is for professionals only.
Anyone can succeed in foreclosure investment. Whether you buy for yourself and your family to have an affordable home or whether you buy for extra income, the foreclosure markets can be very user-friendly. The important thing is to seek expert advice and help, and to do adequate research so that you know what you’re getting yourself into before you sign on the dotted line.
To learn much more about foreclosures –how to find them, buy them, and determine if a deal is genuine or too good to be true – consult the numerous resources at ForeclosedHomes.com.