Following the subprime mortgage crisis of 2007, home foreclosure rates increased dramatically across the country. Some savvy investors were able to capitalize on the huge foreclosure inventory by buying homes at a fraction of their market value. But for every success story you hear about someone getting a great deal on a foreclosure, you can find many more horror stories about people buying money pits that demand extensive renovations. Buying a foreclosed home can be a worthwhile investment, but only if you’re careful to buy the right home. You can start by making a realistic budget that includes more than just the purchase price.
Include renovations in your budget.
Don’t let the attractive sticker price fool you. Some foreclosures can cost tens or even hundreds of thousands of dollars to renovate. Before you start shopping around, determine how much you’re willing to spend on renovations and include that figure in your overall budget. You should also consider what types of renovations you’re willing to take on. You probably want to steer clear of homes with foundation issues or serious water damage, for example.
Consider how long it’s been vacant.
Homes can quickly fall into disrepair when they’re not occupied. Homes that sit vacant for months or years at a time are prone to pest infestations, plumbing issues, sewage backups and more. The exterior might look fine, but there may be serious problems hiding just beneath the surface. If a home has been vacant for more than a few months, approach with caution.
Find out if the home has been winterized.
This is especially important here in the Chicago area. When unoccupied homes aren’t properly winterized, sub-zero temperatures can cause pipes to freeze and burst. This, in turn, can cause costly water damage and contribute to the growth of mold and mildew. If the home you’re looking at has been vacant during the winter, make sure the utilities were effectively winterized to prevent this type of damage.
Invest in a home inspection.
You should get an inspection anytime you buy a home, but it’s especially important when you’re shopping for foreclosures. A comprehensive home inspection can identify serious structural and mechanical issues that might otherwise go unnoticed. It can also give you a better idea of just how much the home will cost to renovate. By spending a few hundred dollars on a home inspection now, you can save many thousands of dollars in repairs down the road.