Home Foreclosures and Big Profits? Just Another Myth

Everyone would like to find a way to make a lot of money without doing a lot of work.  Getting rich quickly seems to be the American dream. And if you watch a lot of late night television, you might think that you have found the ticket to fast riches by investing in foreclosed homes.  There are advertisements that offer to tell you the “secrets” of buying distressed property with no money down and five figure profits in as little as 48 hours. Other advertisements state that foreclosed houses are available “in your area” at rock-bottom prices or that some troubled owners are “desperate to sell.”  Can this be true?  Is there easy money to be made buying and selling foreclosed property?

Home foreclosure is the process by which a home is taken from a buyer by someone with a lien against the property.  Most of the time, the lender initiates this when the buyer has not made payments on the mortgage for an extended period.  Lenders are not really interested in taking back houses; they would much rather have cash.  As a result, foreclosed houses are usually sold at auction in so that the lender might recoup their investment.

Due to rising interest rates and rising house prices, many people have found themselves with mortgages that they cannot afford.  But are people really letting houses go at auction for pennies on the dollar?  Can you buy a foreclosed home today and sell it next week for a huge profit?

The truth is quite a bit less exciting then the advertising would suggest.  Here are some reasons why buying and selling foreclosed property isn’t all it is made out to be:

There is tremendous competition at the auctions.  Believe it or not, you will not be alone if you appear at a real estate auction.  In fact, in these times of sky-high prices, bidders will be plentiful as everyone is trying to save a few dollars.  Most of the time, the hammer price on such auctions will be very close to, and sometimes higher than, average market prices.  The competition is fierce.

You must pay, in full, right away.  If you do purchase a home in a real estate auction, you will be expected to pay for it, in full, immediately.  If you don’t have six figures in liquid cash sitting around, this might not be for you.

A lot of such property is damaged.  Property damage is common, and you may not be permitted to do a full inspection of the property or the damage ahead of time.  This is truly a case where “buyer beware” can apply.

There may be title issues.  It may or may not be possible to obtain a clear title on the property.  Most professionals who buy such property spend countless hours doing title research, thus putting a dent in the notion that you can make money this way on a part time basis.

What about the owner who is desperate to sell before the lender forecloses?  The current market is still pretty lively.  No one is going to sell you property at one third off when they can just put a “for sale” sign in the front yard.

The idea of making a fortune buying and selling foreclosed property is lucrative for those people who market books about the topic.  For everyone else, it’s an expensive, risky, time consuming job.  If you are looking for a quick dollar, you won’t find it in foreclosed property.

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