Foreclosures are great investments, but require patience
Creators News Service
It may sound like a steal: a house available far below than market cost, or available through a bank, the U.S. departments of Housing and Urban Development or Veterans Affairs, and they are eager to offload. But alongside the financial gain a homebuyer can enjoy when buying a foreclosed home can come problems -- some obvious, some less so -- that could offset that profit.
Angry former owners may deliberately take out appliances with little heed to saving wiring or even cause deliberate damage. Homes may not fare well when left alone for months. If they aren't maintained, small problems can spiral and undetected leaks could lead to mold that can quickly spread. The house could even attract vandals and squatters.
Likewise, unattended pools can draw swarms of mosquitoes or other bugs. Tall grass or overrun yards might attract rodents and other animals. Sometimes the original owners owned pets that may have been left behind.
"When buying a foreclosure, you definitely need to look at the value of the home plus the repairs needed," said Frank Schulte-Ladbeck, a licensed home inspector based in Houston. A foreclosed house might still have good "bones" and will just need a loving restoration.
Schulte-Ladbeck said to be prepared to put in a chunk of change into the property. "You really have to look the value of what the house is in the current market and then the cost of fixing it up. Most investors set aside $10,000 to 15,000 for home repairs with foreclosures. You don't always need that much, but it's a good figure to have in your head."
Kevin Snyder, owner of KS Construction and Remodeling, recommended to not only think about price, but to mentally budget time for repairs before setting a move-in date.
Through the years, Snyder, whose company specializes in remodeling foreclosures, has seen great variety in the repairs needed. They vary from homes that need simple cosmetic improvements to former owners vengefully pouring concrete down the toilets and sinks. "Sometimes, people want to get back at the bank," Snyder warned.
From the home inspection end, Schulte-Ladbeck said he often sees a lot of foreclosed homes that have been winterized, but then suffer leaks when the utilities are turned back on and gaskets have dried out. Another issue is electrical damage done when former owners or vandals rip appliances out; there's the danger of live wires left behind. Also look out for signs of fires, particularly in attics, Schulte-Ladbeck warned.
Keep an eye out for code violations, which usually occur when a homeowner has done the repairs him or herself without strict attention to safety standards.
If you're going to have someone help you, check out that person's credentials. "Make sure you hire a licensed contractor," Snyder advised. "There are a lot of bootleggers out there right now."
Although saving on repairs might seem in sync with the idea of saving on a house's price, Snyder cautioned that if the work only needs to be redone down the line, you'll pay more. While most problems in a foreclosed home are usually visible, some lurk, such as a leak beneath the floorboards or in the attic.
Remember that not all the problems may be big. "Before they're going into foreclosure, people often don't have the money to maintain their homes well," Schulte-Ladbeck said. "Little things start breaking down, such as door handles, a cracked window, or maybe a cabinet door coming loose or a light fixture or a fan. A lot of these are simple repairs, but everything adds up."
If there's a large issue to repair, such as fixing a house's foundation, he warned, the costs can quickly increase.
Schulte-Ladbeck said to consider the home's reduced price your savings, but don't skimp further. "Be sure to get a professional or a realtor to help you," he said. "A lot of people are trying to save money, but they need somebody who can go and talk to the bank and represent you professionally. You want an advocate."
Snyder said he's witnessed some "humongous" transformations where an unkempt, abused home ends up looking move-in ready and beautiful. At minimum, most homes need new paint and new carpeting.
But not everything wrong needs to necessarily be fixed at the same time, and if the repair work is cosmetic, the risk can bring reward.