Are Bank Foreclosures A Good Investment?
It's no wonder that bank foreclosures are on the rise when you consider that upwards
of 45 to 50 percent of homeowners are underwater on their mortgages.Many homeowners have such an incredible amount of negative equity in their homes that they'd never be able to recover and they are merely abandoning their homes, and their mortgages, and letting them go back to the bank.For these owners it's a no win situation. They can either continue making their monthly mortgage payments while they watch the value of their home sink lower and lower or the can ruin their credit forever and simply leave town. And it's typically the second option that they're going for since most of these owners have also seen a reduction in income because of the loss of a job or dwindling investments.This might seem like the perfect opportunity for you to pick up some low cost investment property however are bank foreclosures really the wonderful opportunity that they appear to be?
If you're considering buying back foreclosures you need to keep in mind the reason why the homeowners turned that property back over to the bank in the first place. Because there wasn't enough equity in the property to make it worth it to them to attempt to sell it themselves. Negative equity happens when you continue to owe more on the property than it's currently worth which means you'd need to ask far more than market value if you wanted to sell it to get out from beneath the debt.
When a bank forecloses on a property, if it doesn't sell at a foreclosure sale, it becomes the property of the bank. At that point, the bank takes over maintenance of the house, covers tax liens and association fees and considers that property to be one of it's assets. Most people assume that after a bank takes possession they'd be happy to let it go to the first one who is willing to buy it. However the bank has money invested in that property, too. There is the original loan balance, the back interest, and all the fees that have been generated since they took ownership. And banks are wise investors, too. The bank does not need to sell that property at a loss for the simple reason that they're in the business of making money, not losing it, and they get the same advantages of owning property that you or I do.
While it's true that you can often pick up bank foreclosures for little or no money down, you mustn't automatically assume that just because the property is owned by the bank that you're getting a great deal on the price. It still pays to do your research and find out the market value of the home versus the original selling price, together with the asking prices and market values of comparable homes in the area. Then you'll be able to make an informed decision as to whether or not bank foreclosures are really a wise investment.
by: Vladymir Rys