The real estate investing question of the week: Is buying a foreclosure smart for a first-time real estate investor or home buyer?
Bruce Feldman’s Answer: Yes, but not necessarily for the reasons you might think. The truth is that it really doesn’t matter.
The fact that a home has been brought to market as the result of a foreclosure action, or any other unusual or distressful circumstances, is really irrelevant.
This issue is an example of the psychology of real estate, where buyers (especially first-time real estate investors and buyers) consider issues outside the relevance of the transaction in making their purchase decisions. As such, many buyers mistakenly equate the term “foreclosure property” as necessarily meaning “a great deal.” This concept also holds true for terms such as “estate sale,” meant to impart a sense of urgency in the settlement of a deceased person’s affairs.
Foreclosures can be a great deal, and they can also be a complete disaster. But this is really true for all properties.
A normal buying process simply compares price with the features, advantages and benefits of owning the item a buyer is considering purchasing—all relative to the opportunity to purchase a similar item elsewhere from another seller upon better price or terms.
Knowledge of how or why a property came to market, who the seller is and other such facts, while interesting, should never affect the level of interest a buyer has in a property or the “smartness” of buying it.
To use an analogy, suppose you were shopping for a used car. Would it be “smart” to consider buying a car that you knew had been repossessed because the previous owner failed to make the monthly payments? If it’s a good car and meets your needs at a fair price, you’ll likely buy it. And if it doesn’t, you won’t.
With foreclosures, most investors and buyers seem to be on one extreme or the other. Either they avoid them completely or they actively seek them out. Few buyers seem to be neutral on the issue, which they really should be, because it truly doesn’t matter.
While using experienced professional guidance and thorough due diligence, first-time real estate investors and home buyers should consider ALL properties that meet their criteria within their budget, without regard to the circumstances that brought the property to market.
And if the property of interest turns out to be a foreclosure, then they should certainly be successful at purchasing it and enjoying it for many years to come.
About the author:
Bruce Feldman is President and founder of Bruce Feldman Associates, LLC. Bruce is a New York State Licensed Real Estate Broker, Certified Commercial Leasing Specialist (CCLS) and Certified Leasing Advisor (CLA).