Welcome to “Ask Stacy,” a short video feature answering money questions submitted by readers and viewers.
Today’s question is about buying real estate; specifically, the pluses and minuses of buying foreclosures or repossessed homes.
I live in South Florida, the center of the nationwide real estate crash that spawned the Great Recession. I did lots of stories about foreclosures back then, and even attended several foreclosure auctions, both in my role as a reporter and as an investor.
One thing I learned: Not all foreclosures are created equal and not all are suitable for small investors.
Watch the following video to get the information you need before you travel this potentially perilous path. Or, if you prefer, scroll down to read the full transcript and find out what I said. You also can learn how to send in a question of your own below.
For more information on this topic, check out “How NOT to Buy a Foreclosure” and “How to Steal a House – 4 Steps to Buying an REO.” You can also go to the search at the top of this page, put in the word “foreclosure” and find plenty of information on just about everything relating to this topic.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, everyone, and welcome to your money Q&A question of the day. I’m your host, Stacy Johnson, and this question is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.
Let’s look at today’s question. It comes to us from Victoria:
“Is buying a repo a good idea?”
I’m going to assume that Victoria’s talking about a repossessed or foreclosed home.
Victoria, the first thing you need to know is that there are two types of foreclosures. One is called a judicial foreclosure, which means the repossessed home went through the court system. The other kind of repo you’ll often hear about is when the mortgage holder takes a house back, then lists it through a Realtor. This is often called an REO listing, which stands for “real estate owned.”
When you shop judicial foreclosures, you’re likely attending an auction. The rules are different in different states, but generally speaking, you’re going to be standing in a crowd of people and bidding on a home that you’ve not had the opportunity to inspect, or even see from the inside. You will also have no opportunity to get a mortgage.
In other words, you’re going to have to pay cash — often within 24 hours — for a house you haven’t inspected, and may not have even done a title search on. You’ll also likely be competing against deep-pocketed professional investors with years of experience.
This type of repo buying may be the best way to get a screaming deal on property, but it’s far too risky for most people. In my opinion, it’s suitable only for experienced professionals.
I’ve covered a couple of these auctions in my news career, and even participated in one or two as an investor. It’s an interesting thing to watch, and I’d encourage you to check out an auction or two. Just don’t raise your hand and buy anything until you’re absolutely, positively sure you know what you’re doing. So, for the sake of this discussion, let’s forget judicial foreclosures. If you want to pursue that, great. But you’ve got a lot of studying to do.
Now let’s move on to the more typical repo; the kind where a bank or other lender takes back a house because the owner didn’t make the mortgage payments. It may have gone through judicial foreclosure, but the bank won the bid, now owns it and is listing it through a Realtor.
In most ways, this type of repo is like any other home listed through a Realtor. The bank has taken back the house and hired a Realtor, just like you would if you had a house for sale. The bank has then put the house on the market. In this case, the buyer has the opportunity to inspect the house.
Often these houses aren’t in the best of shape, so you might get a better deal. If you’re a fix-up type of person, this may be a good way for you to get some sweat equity. But essentially, the process is like that of buying the typical house. You get it inspected. You have the opportunity to get financing.
Bottom line? While I’d discourage you from investing in judicial foreclosures, I’d encourage you to check out bank-owned property, especially if you’re the type who likes to fix things up.
I hope that answers your question, Victoria. Now let’s close with our quote of the day. This one comes from Criss Jami, philosopher, poet and author.
“In the fashion industry, everything goes retro except the prices.”
Have a super-profitable day and meet me right here next time!
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I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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