Pros & Cons of Buying a Foreclosure

Whether you’re interested in real estate investment or simply want to buy a commercial property for less, consider buying a foreclosure. Foreclosures are known for being rundown and outdated, making them lower in value. But there’s more to the story. When you’re considering buying a foreclosure, there are several pros and cons to consider before making an offer or passing it over.

Con: Bad Neighborhoods

Many foreclosed properties are in low-value areas to begin with, located in areas with high levels of crime or low customer traffic. And although the property may have a low listing price, it may not appreciate very much over the years due to where it’s located. If you plan to expand enough to move in the next 5 years, a foreclosure may not be the best choice for you.

Pro: Fast Sale

When you’re ready to purchase commercial space quickly, a foreclosure will allow you to obtain the title in a short amount of time. Sellers of foreclosures are often looking to sell the property as soon as possible and are desperate to find a buyer due to the quality of the home. Unfortunately, you may not be able to negotiate a lower price due to the condition of the building. You’ll also need to follow foreclosure laws that have been established in the state.

Con: Overdue Repairs

Another one of the disadvantages of purchasing a foreclosed property is that it is likely in a state of disrepair; if the previous owners couldn’t make their payments, they probably couldn’t afford repairs, either. Some of the most common damages found in foreclosed properties include:

  • Peeling paint
  • Plumbing leaks
  • Broken appliances
  • Cracks in foundation
  • Missing shingles and/or roof leaks

If you’re interested in buying a foreclosure, keep in mind that much of the “purchase” cost will go into repairs. This also means that you will have to wait until some of those repairs are finished before you can move in.

Pro: Financial Gains

If the property you’re considering is not in a bad area, purchasing a foreclosed commercial property makes room for profit once you’re ready to relist it, . The price that you pay initially will be below market rate, but the property can increase in value once you fix it up and add a few upgrades. Your investment return can lead to a larger gain that pays off and gives you a bigger budget for your next space.

Foreclosed properties are ideal to purchase for startup owners who are not afraid of investing a little more work, time, and energy into their future commercial space. By understanding the advantages and disadvantages of this type of property, you’ll get an idea if you’re ready to make the purchase or if it would be better to move on.

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Linda Williams

Linda Williams is a financial analyst turned writer with a talent for demystifying the complex world of venture capital and investment. Her columns offer a blend of practical advice and forecasts that are invaluable to investors and business owners alike.