Tips on Buying a Foreclosure

George is about to buy his first home. He and his wife are considering buying a foreclosure and remodeling it. Is that a better idea than buying a new home?

QUESTION: George in Pennsylvania is about to buy his first home. Home prices in George’s area are high, and he’s been told buying new is the best way to go. However, he and his wife are considering buying a foreclosure and remodeling it. Is that a better idea than buying a new home?

ANSWER: If you were to buy a foreclosure, you would want to get a bargain on it. You don’t want to just pay retail for it just because it’s a foreclosure. Sometimes people slap the label foreclosure on there because it is actually a foreclosure, but then you pay full freaking price for it, and that’s no way to go. If you’re going to pay full price, buy a new house.

If you can buy a bargain—whatever a bargain is—then it’s worth the trouble, but don’t just buy something—even a short sale. I mean, I buy property all the time, and a lot of the properties presented to us are short sales, but they’re not a good deal even after a short sale. So you need to figure out what the actual value is. For the company to approve 50% actual today value is very unusual on a short sale—like almost nonexistent.

You’ve got to figure out what the actual house is worth based on the things that it has. If it doesn’t have things available to it, it devalues it, and based on that, you’re going to take the real value of the house and then buy that at a discount if you’re going to do work. And I think that’s the best route to go on your first home, but do make sure you get a deal. And a deal’s not $2,000 off or $5,000 off. A deal is tens of thousands of dollars off. If you’re going to go in there and do work, you need to be paid not only for the work but you need to be getting a bargain after the work is done. You still came out ahead after you paid yourself, in a sense, for the work. Otherwise, you just bought a house that needed painting. That’s not a good deal.

Be careful with that, but as long as you can find something that is a legitimate bargain by actually studying and taking your time learning values, then yeah, I think that’s the route to go. I’m happy that we taught you enough that got you in the position to do that. That’s cool.

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