Over the past few years, “Foreclosure” has become the new “F” word. Devastating neighborhood values and negatively impacting families across the country, foreclosures became the next “big thing” for many folks, being touted on late night television as the next “get rich quick” scheme. A fast and cheap way to achieve the American Dream.
While a few years ago just south of us in Prince William County and over in Prince Georges County in neighboring Maryland foreclosures were taking their toll and comprising a huge % of sales, Alexandria did not see a tidal wave of foreclosures. Sure, there were a few here and there, but overall, they have just not been a big factor in our immediate area. Still, they do pop up here and there – and eventually some of the short sales we see today may ultimately go to foreclosure, so there is always the chance a house comes on the market in which you are interested that turns out to be a foreclosure.
The thing is, foreclosures are not “houses on sale” or discounted homes. Sure, the price may at first seem like a bargain, BUT generally speaking, foreclosures are priced at market value LESS an adjustment for condition. And, the bank does demand you give up some of the protections you would ordinarily have in a regular sale.
Now, if you are handy with a hammer and can do some repair work yourself, then, yes, a “needs TLC” foreclosure may give you a terrific opportunity to build some sweat equity.
But, if home repairs are not your thing and you are going to have to rely on a contractor to get that foreclosure into a livable condition, then by the time you add up all the repair costs, you may be looking at a price tag that is the same, if not more, than that of a “regular” sale.
Along that same line, don’t forget any money you put into the house for repairs or improvements is most likely after-tax out of pocket money. Instead of leveraging OPM – other’s people money – in the form of a mortgage which is partially tax deductible, you are spending your own money on which you have paid taxes and for which you will not be getting a tax break.
In the next few posts on the subject of foreclosures, we will delve more deeply into the specifics of finding foreclosures, making offers, assessing the real value and the possible pitfalls, as well as some solutions to the problems foreclosures can pose. Stay tuned!