Is it a good investment to buy a foreclosure house now?
May 18, 2009 in
Investing
Muchka
I am a first time buyer. I heard that this is a perfect time to buy a house because the market is low and there are a lot of foreclosure houses which will cost much more in a few years. Is it a good idea to buy a house now, to rent it and to sell it in a few years?
I am a first time buyer. I heard that this is a perfect time to buy a house because the market is low and there are a lot of foreclosure houses which will cost much more in a few years. Is it a good idea to buy a house now, to rent it and to sell it in a few years?
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2 comments
heyteach on May 18, 2009 at 6:57 pm
Possibly. Yes the market is low and if you wanted to live in the house for awhile, at least a couple of years, I’d strongly encourage considering it. If you want to buy for an investment, then a lot of other factors come in:
what do you know about real estate? Lots of profits can be made but you have to do your homework to achieve that result
what’s the rental market like where you are? Do you have a desirable house? How much will repairs and such cost to get it move-in ready? Who will manage the property–you or someone else? Do you know how? How will you calculate rent? How long can the place be vacant before you have financial problems–or run the risk of vandalism, losing your insurance on it, etc.? What if maintenance or repairs are needed while there is a tenant? Do you know what to do if a tenant won’t pay? violates the lease (moves others in, gets pets you didn’t allow, becomes destructive of the property?)
The list goes on and on. How are you going to qualify and screen your renters? Do you know the business aspects (tax issues) for doing this?
Being a landlord is complicated and potentially heartbreaking. You might want to buy, move in, fix it up a bit at your own pace, and after a couple of years of that as your principal residence, when the market should be rebounding, you could sell and keep the profit. Maybe that’s a better choice.
farfel on May 22, 2009 at 4:04 am
generally speaking, the market has been coming down since summer 2005, but i don’t think we’ve gotten even halfway through it yet, so there is a long way to go. there are still upwards of $500 Billion of adjustable rate mortgages due to reset in 2008, and perhaps even more in ’09 and through ’10. you then have to wait for the effects of the resets to work their way through to see if this will cause even more foreclosures, and, based on recent history, this is the likely scenario.
if you don’t really feel that you absolutely need to buy a house, i’d sit on the sidelines now and continue to rent and save your money. you could buy a house now and rent it out, but if the house value is still going down, you won’t make any money at all. i’d say that 2010 is the earliest you should start looking to buy, unless you know that you just can’t lose on the deal. in the meantime i’d keep track of monthly foreclosure stats and see which way the trend is going. eventually it should level off and decrease, but i think it’ll be a long while until we get there. then it’ll be the time to buy.