Why You Should NOT Buy a Foreclosed Property

The more depressed the real estate market gets, the more the promoters come out from under the woodwork, under their rocks, or wherever they have been hiding, to pitch their expensive—and unrealistic—plans and programs about how to get rich in real estate through foreclosures.

Right now, the residential real estate market is softening, which means that, sad to say, more families are losing their homes due to foreclosure. In a strong real estate market, and in a strong economy, there may only be a couple of foreclosures in a neighborhood at any given time. Right now, when the real estate market is sorting itself out from the sub-prime debacle, foreclosures abound.

A lot of people have the idea that one man’s loss is another man’s gain. But when it comes to foreclosures, one man’s loss may be the next man’s loss, too. Why buy foreclosed properties? When you buy a house that’s been foreclosed upon, you’re buying a house that didn’t sell. The owner of the house couldn’t sell it and the bank couldn’t sell it. They’re just hoping that a sucker— I mean an “investor”— like you will come along, ready to take that white elephant off their hands.

Let’s first consider what foreclosure is. Very simply, it’s when an individual who owns a house, has taken out a mortgage and can no longer make the payments. They couldn’t sell the house for a price that would allow them to pay off the mortgage so the bank stepped in to recoup as much as it could of what turned out to be a very bad investment all around. If you buy it, you own it, and need to pay the mortgage on an empty house that likely hasn’t been maintained. How long can you afford to do that?

More often than not, investments in foreclosed property turn out not to be lottery tickets but a path to bankruptcy. You might be willing to offer more than the other speculators, but what does that tell you? It means that all the other real estate investors in your neck of the woods were not willing to put down as much money on that property as you, in your infinite wisdom.

It’s too bad they already made a TV show called “The Biggest Loser,” because that’s how I would describe anybody unfortunate enough to offer the most money, out of all the speculators, to the owner of a foreclosure property. Once again, you’ve got to ask yourself whether you’re smarter than all the other investors looking at foreclosures, and all the home buyers who passed up the opportunity to buy the house from a realtor or directly from the owner, and the bank or government entity currently in possession of the house.

If this sounds harsh, I’d rather you learn from me that foreclosures don’t work than learning it in a hard and painful way, by going to the time, trouble, and expense of a property that costs you more in money and heartache than you could ever make if things really worked the way the foreclosure hucksters would like you to believe.

I can offer you the sad experience of countless people who thought they could make money in real estate through foreclosures. By and large, they didn’t. But a new generation of hopeful investors arises every day, and the people with those full-page ads for seminars on how to make money in these fields continue to prey on them.

Can you still make a fortune in real estate? You bet. Do it the right way, and you’ll be very satisfied with your results. It’s a turnkey approach that is disciplined but very effective. It is truly the #1 way to invest in the # 1 investment in America -- which truly is real estate.