Simple Reasons Why Foreclosure Investments Are a Bad Idea
There are some people who are convinced that investing in foreclosures is the way to go; that this is the way they are going to make the millions that they dream of. I would gently disabuse people of this mistaken notion. Foreclosure investments are neither as common nor as simple as people believe them to be. For a number of reasons foreclosure investments are not advisable. In this economic climate, the idea of making big money off of foreclosures is going to remain a pipe dream mostly. I explain why here.
What are foreclosures and when do they happen?
Simply put, foreclosures happen when a person is unable to make payments on a property loan they have taken. In such a situation, the bank or financial institution, who is the lender /mortgagee in this case, will ‘foreclose’ the property. They will auction off the property to recover their dues. Theoretically, it makes sense to invest in such foreclosures because banks and other lenders basically want to sell off and get the property off their hands. They don’t want to be stuck with a non-liquid asset that they cannot lend or otherwise monetize, so you can buy cheap.
But think about it – when does a foreclosure actually happen? Well, first the borrower or mortgagor defaults on their payments. Then the lender sends notices and then proceeds with the foreclosure – a process that will typically take months. In the meanwhile the property owner has other options – especially now when it is more or less a seller’s market. Our recent experience has been that in a lot of markets, people receive multiple, excellent offers as soon as they put a property up for sale.
So why would any homeowner let it get to the foreclosure stage when they have other, better options? In the past, when times were tough, banks were foreclosing thousands of properties. So during the 2008 recession and for years after that, this would have made sense. However, it doesn’t anymore, particularly now in these COVID times as I explain in this short video. And that is why I say that right now foreclosure investments remain a bit of a pipe dream.
Still thinking about foreclosure investments? You must be brave!
Why brave? Because buying foreclosures is a lot more complicated than it seems. If you decide to bid for a property that is undergoing foreclosure or intervene in a suit, there is a lot you would have to check – are the property titles clear? Is there some other lien or pledge on the property or IRS issue? Foreclosure investments need significant expertise and experience. Plus in my experience, parties sometimes collude with each other as well. I have seen people being financially destroyed as a result of this.
For all of these and other reasons, I advise people against investing in foreclosures. There are other sounder, better investment opportunities out there for you. Get in touch with us to know more.