Buying Chicago foreclosures is a popular strategy among savvy investors to help reduce their initial costs and increase profits. There are pros and cons of buying foreclosures compared with properties that are not foreclosed. Take a closer look at the most important factors on each side to confirm whether buying foreclosures in Chicago is right for you.
Pro: Discounted Price
The biggest benefit of buying a foreclosed property is the discount. This is true no matter what phase of the foreclosure process the property is in, although it can vary greatly.
The discounted initial price makes it easier to invest in a property and get started even with less capital. It also improves your potential return on investment.
If you get lucky, you can get the largest discount on a foreclosed property at auction. You can also get excellent discounts on pre-foreclosures and real estate-owned (REO) foreclosures. In any case, the discounts come from the fact that the owner wants to quickly sell the property.
Pro: Can Find Flexible Agreements
Depending on the stage of the foreclosure process the property is in, you may find a property that offers more flexible sales agreements. This is particularly common in pre-foreclosures, as the homeowner wants to avoid the hassle of a finalized foreclosure by selling their property.
Pro: Potential Financing Benefits
Although not always the case, a bank that is selling a foreclosed property may offer better financing. It would do so with the goal of selling the property more quickly, so it can start to regain some of its lost money. This could result in you having a lower mortgage payment, less interest, and even lower closing costs.
Con: Heavy Competition
If you are looking at buying Chicago foreclosures, you should be ready for a highly competitive field. Most people are aware that foreclosures can offer great deals, so both property investors and those looking for their future home will likely be looking at the same properties that you are. This means that you need to act quickly and know what to look for to take advantage of many foreclosures.
Con: Inspections Not Always Possible
To help protect your investment, you always want to have a property inspected before buying it, especially in the case of a foreclosure. After all, foreclosed properties are more likely to have missed maintenance and problems that were left unattended. If the homeowners could not pay the mortgage, they likely could not pay for repairs, either.
The issue is that in some situations, such as when buying foreclosures in Chicago at auctions, you may not have the option to complete an inspection. This is somewhat risky since it could set you up for a potential loss depending on the necessary repairs.
Cons: Additional Hidden Costs
If you buy your foreclosure before it becomes an REO property, then you will likely be on the hook for extra liabilities, such as lines of credit on home equity and property taxes from years past. These are cleared when a Chicago foreclosure becomes an REO. Still, you should be ready to factor them into your cost analysis if you buy before that stage.