It's an idea that would make many investors blanch. In today's world, when foreclosures are advertised on every web site and newsletter, paying full or retail price for local real estate investment properties just doesn't seem to make sense. After all, foreclosures are repossessed properties that are often sold at well below market value -- or so many advertisers would have you believe. Paying less for a property ensures more profits down the line. However, before you lose your shirt on the foreclosures market, consider all the reasons why paying retail and avoiding the foreclosures makes sense:
1) Foreclosures may not be the bargain you think they are. Many banks, for example, sell foreclosures at almost full market value or even above market value. With more people buying foreclosures than ever before -- and understanding less and less about them -- there is less onus on sellers to sell them at a discount. Plus, many homeowners are using up all their home equity (and sometimes more), which means that if they default on their home loan the lender must sell for full or above market value to recoup their losses.
2) You get what you pay for. When you pay a decent asking price for local real estate investment properties, you often get a home in move-in condition. This means you can start placing tenants or start reselling right away. In contrast, when you buy a foreclosure you're never quite sure what you're getting. You may wind up with a property that needs a lot of work or comes with pricey legal problems. Of course, you need to research every property you buy, but there are more problems likely with foreclosures than with properties you buy on the traditional housing market.
3) Retail does not mean full price. You can still buy properties at below market value when you buy them on the regular market. Many properties that are being sold right now that are not repossessed are being sold at below market value because they need a little work or because they are not selling as quickly as the homeowners would like. Plus, many homeowners want to get rid of their homes quickly or need to sell now, and are willing to sell at below market value in order to do that. The result is that you still get a great bargain on a good property without playing in the foreclosures market.
4) Traditional buys. This is where retail selling really makes sense. When you buy from a traditional seller in a traditional transaction, you get to look at the property, have an inspector look it over, and you even deal with a real estate agent if you like. All of these are layers of protection from losing your shirt. In contrast, foreclosures are often sold "as is," and some are sold at high pressure auctions, which allow you very little information about the property before you buy. Why take that sort of risk? Looking for decent sales on local real estate investment properties just makes more sense for the beginning investor.