Would you Consider buying a Foreclosure as your First investment property?

Question

Hi BP Family,

A quick thank you to some of the seasoned REI’s actively posting that strive to help us newcomers understand and use the forum the best way possible! To my fellow Newbies – Don’t Give Up! It’s ok to feel lost, overwhelmed, excited and confused… all at the same time. My biggest tip I learned – Use the “search” function (the magnifying glass next to your profile icon) to search for your question BEFORE posting it on the forum. I have found many answers on many existing threads, to help guide me along my journey.

Actual Question: Would you consider buying a foreclosure as your first investment property, as a relative beginner?

Context: I’ve been using MLS, realtors and wholesalers to seek out my first investment property (debt free outside existing mortgage, $100k cash saved, stable income), since my network is fairly new and limited as a green investor. I’m starting small, with a “Slow and Grow” approach, and have found a 2 BD SFH in my price range (under $150k) that needs rehabbing, BUT it was foreclosed and is now sitting vacant.

In your experience, would you advise that it's best to avoid the complexities of the foreclosure purchase process as first property newbie, OR proceed with caution under the right circumstances.

Any (and all) advice is appreciated! Happy to share additional info. Thank you for reading!

Jonathan Greene · Answer

If it is a true foreclosure, I would say no. A true foreclosure meaning there is no access to the property, it is completely as-is, and you are responsible for the liens. That is a courthouse steps buy and not advisable in any way.

If it is on the market, it is either a short sale or an REO. An REO would be your best option as a first-time investor because the bank has to make certain repairs so it is livable upon turnover.

Evan Polaski · Answer

@Kim Kelly, my first investment property was a foreclosure, so yes, I would consider it.

It does not sound like you are doing this, but just because it is a foreclosure does not mean it is a good deal. So it should be assessed like every other deal: purchase price, rehab costs, rent level, expenses to operate, etc.

While this is not unique to foreclosures, and should be done for EVERY deal, I highly recommend you get full title insurance on a property.  I have had to use my title insurance in 3 separate deals over the years.  And even though I know many people that have done dozens and dozens of deals over 15+ years, and never had a title issue, to me it is worth far more than it costs.