There are a million ways to find a real estate opportunity, but I never recommend foreclosures as one. Personally, I think foreclosure is a bad “F-word,” and I just don’t use it. There are plenty of reasons why I feel this way, but I want to share with you my top 5 reasons to avoid foreclosures as an investor.
Five Reasons to Avoid Foreclosures as a Real Estate Opportunity
You probably know by now how much I absolutely adore lease options and seller financing as my preferred investment strategy. I mean, why wouldn’t I?! These deals are the best ones I have ever found and they keep things neat and simple.
Foreclosures, on the other hand, are messy and complicated ordeals that honestly I just don’t want to deal with. But, I am going to explain all of that to you. So, here are my 5 reasons to just say NO to foreclosures.
#1 Up-front Down Payment
Unlike what we have discussed so many times with lease options, foreclosures require you to put money down in order to buy the property. This means you will need to go through the mortgage pre-approval process OR hand over about $10,000 or so of your hard-earned savings. Now, I don’t know about you, but most people do not really have a cool $10,000 sitting around just waiting to be used.
One of my students recently found a $14,000 foreclosure and he was super excited! He was nearly calling the contractors to find out what they were going to do with it before he even went to check it out.
But, then he did, and he realized why they were only asking $14,000 for it.
The house was a mess and needed probably about $100,000 worth of work. Well, he didn’t want to do all of that, and honestly I didn’t want him to either. So, thankfully he backed out of that deal before he got in over his head.
See, one of my main focus points, when I teach women how to invest in real estate, is that they do not need money to buy real estate. And, seriously, you don’t. But, if you want to buy foreclosure properties, you need money. So, this is my top reason why I avoid foreclosures as a real estate opportunity.
#2 You Gotta Deal with Banks
I hate dealing with banks. There, I’ve said it. I hate everything about having to deal with banks because they are not people. Far too often the banker who needs to make the decision regarding what they will and will not accept as an offer on a foreclosure is not close to your town at all. In fact, they are probably off in some ivory tower where they have no clue what is going on with the market near you. This house is a “dime a dozen” to a bank.
But, with a person you can be everything. Banks don’t care about you or the seller. They just want their money. Buying a house with a bank, even a foreclosure, can take MONTHS, which means your money is tied up the entire time. I do not want some bank telling me what I can and cannot do in all of that time.
This is why I don’t fool with foreclosures as a real estate opportunity.
I don’t even mess with sellers who are behind on their payments. It is just not worth the headache to me. When you work with a house that is behind on payments, you first need to get the house all caught up before you can even think of making a return on your investment. It is just not a good real estate opportunity.
This is one of the first questions I ask my potential sellers; if they are behind on payments. If they are, the deal is no good to me. It is just not worth the headache and the work when there are plenty of other houses out there to find.
#3 Competing with Shark Investors
When it comes to foreclosures, there are a handful of government agencies that basically back all of the mortgages in the country. Fannie Mae and Freddie Mac are probably the ones you have heard about, but there are a few others that work in the foreclosure arena, too. Well, when a house is added to the MLS or however it is that they look to sell it, there is a block against any investors making an offer.
This block is about 16 days and it is meant to encourage an owner occupant to have priority to buy the property, which is not a bad thing. It gives owner occupants time to consider what they want to do and not feel outside pressure in bidding against investors.
But, when that time runs out, investors will immediately jump right in with a million offers and bids. They are like sharks swarming and ready to strike. For some of these guys, this is all they do! They are professional investors. Their money just rolls from house to house investing in foreclosures. And, I don’t want to deal with those guys.
I also don’t want to have to wait 16 days to make an offer. In fact, I want to have already made the offer, closed the deal, and gotten the keys in my hand!
When I find a deal, I want to close on it ASAP, not in 16 days, and definitely not when a bank tells me I can.
And, don’t forget, the paperwork is CRAZY with a foreclosure. SOOOOOOO many papers… It is too impersonal, too much work, too crazy, and too overly managed by bank control. For me, it is NOT a solid real estate opportunity. Just, no.
When it comes to agents, typically they live off of the relationships that they develop with their sellers. And, this is a good thing! I mean, the main reason I love doing lease options is because of the people. People are my thing! There is nothing better than helping people out when they are caught in a bind because life happened to them. Realtors are part of almost every real estate opportunity out there, and they want to make sure that their sellers get the best deal they can.
Now, since we are talking about foreclosures, the agents that will usually deal with them actually specialize in this area. They are not your typical agents. Usually they are foreclosure agents and this is what they do. Since it is not always the easiest way to do things as a realtor, there are not a lot of them around. Your area probably only has one or two foreclosure agents! And, sadly, not all of them put the same amount of care and hard work into doing a good job.
In my area there is an awesome woman who is a foreclosure realtor. She is great! While she totally plays by the rules, she knows how to do so in a way to make deals work for investors, too. It’s great. But, she is a diamond in the rough, and that is why I do not want to deal with foreclosure agents typically. They are just another hoop to jump through to me.
#5 Foreclosures are On the Decline
Now, before you start attacking me about how foreclosures will always be here, hear me out. Yes, there will always be some level of foreclosures happening, if we look over the past decade or so of foreclosures you will see that they are on the decline in general.
I know a while ago that foreclosures were happening left and right, but now they are not nearly as common. And, every investor that I know or have met who made big money in foreclosures have already added in other strategies for buying houses because they cannot depend on foreclosures any more.
Also, don’t go thinking that foreclosures are easy money!
Remember my student? Sure, a $14,000 house sounds awesome, but not when you have to put $100,000 worth of money, blood, sweat, and tears into it just to get it liveable. It was a mess, and most foreclosures are just like this. They are just not worth the time, effort, and investment, even if you do have a good payday on the backend. That kind of real estate opportunity is not an opportunity for me for anything more than headaches.
Don’t Give Up on the Real Estate Opportunity Though!
Look, I know I have said some things about foreclosures and why I really don’t mess with them, but that does NOT mean I don’t encourage investing in real estate. NO! Absolutely the opposite. I just don’t want you or anyone else to jump into this without a plan, and why make it more difficult for yourself?! Foreclosures are not easy, but that is why I do things the way I do. Lease options keep things simple, and I swear by them day after day.
You can absolutely make some seriously awesome money with real estate. And you can totally change your life simply by creating passive income! And I want to help you succeed, which is why I am giving away my webinar all about how to buy houses and make $10,000 in passive income. I am serious about my passion to help you and am giving away all of my secrets.
If you need a little more oomph and support as you jump into this real estate journey, make sure you check out the She Buys It community on Facebook. It is such an awesome group there. You will learn so many wonderful things and see the incredible success these ladies have and achieve every day! It’s awesome.
So, don’t let foreclosures hold you back from your success as a real estate investor. Nothing stands in your way if you do not let it, so make the decision today to get serious, take action, and change your future now. Go get it!