Buy a Real Estate

I cannot keep track of how many times people tell me that they were thrilled to sell a property at a handsome profit, and then a few years later recoiled with total remorse when they realized that the property had doubled or trebled in value yet again. That doubling or trebling in value, if they had kept the property, would
have come at the expense of very little marginal effort. There would have been no contracts to study, no due diligence to perform, no finance applications to make—none of the activities normally associated with buying a property. In fact, by not selling the property, they would have saved all the contractual work associated with a sale.

There are, to be sure, extenuating circumstances when there may be some legitimate reasons to sell. For instance, with the restaurant premises that I bought for $120,000 discussed earlier, I had a succession of tenants, and then the building ended up being vacant. After many months of applying all my techniques to attract a tenant, I finally got a call from a couple in Switzerland who were keen to sign up as tenants. I was all excited at the prospect of having the premises leased once more. Then, just before they were going to sign the lease, they contacted me to say that after a lot of thinking, they decided that they would only proceed with their dream of opening their own restaurant if they could own the freehold of the property. I was faced with two options: Hold out for the gamble of a new tenant (which could take a long time), or sell the entire property to the Swiss couple at a handsome profit. It was an easy decision.

Is purchasing a house at the time of foreclosure similar to buying a house that has already been foreclosed upon?

No. There are two different types of home foreclosures purchases. The first is when the lender actually forecloses on the property. If you’re interested in purchase you can show up in court and bid on the home foreclosure. The second type is when the lender or insurer actually owns the property and is selling it as its rightful owner.

Is the escrow the same as a typical real estate transaction?

No. When you’re buying home foreclosures at the time the lender takes the property back, you must show up in court, bid on the property, and if the bid is accepted, you are obliged to buy the house with a cashiers’ check, without inspections, and without any contingencies. When you’re buying from a lender or insurer after the house is already foreclosed on, there is still the opportunity to negotiate the price and terms, but because of the competitive market, the lender will normally end up calling most of the shots.

Do home foreclosures involve any additional legal concerns or fees?

No. With proper inspection, home foreclosures are unlikely to be accompanied by any additional legal concerns or fees. Bearing that in mind, remember that usually home foreclosures are sold “as is,” and due to the fact that the lender has never occupied the actual house, they are often not aware of the intricacies that may typically be required on a disclosure (for example leaking roofs or problems with electricity).

Does buying a foreclosed house involve any risk?

No. Purchasing a foreclosed home is unlikely to be risky if you do a thorough investigation. Be aware of the two facts: lenders will have limited information to work with for disclosures; secondly, people tend to get excited by the idea of a “sale,” and fail to notice the actual value of house foreclosures because of a “perceived value” issue. Consider the following hint: try to forget that it’s a foreclosure and think of it as a piece of real estate.

Is a foreclosure always an “as is” deal or can I negotiate with the bank for repairs or improvements?

As a buyer you can always try to negotiate, but conditions of the home foreclosures market are more likely to favor the lender, who will in most cases be able to sell the property “as is.”

As a person with a lot of experience in insurance I suggest that if you’re a real estate owner you should check your coverage each year in order to find out whether you have enough insurance to rebuild your house and replace your belongings if everything is lost in a fire or other unexpected event. What you should ask yourself is:

• Is the “replacement cost” covered by your policy acceptable taking into consideration the costs of labor and materials in your area? For instance, it’s rather doubtful that many homes in Silicon Valley could be rebuilt for less than $200 a square foot.
• Does your policy involve “extended or modified replacement cost coverage?” This gives you a certain percentage above the policy limit to rebuild your house.
• Does your policy include a “building code endorsement”? It covers the costs of bringing your home up to building safety codes when it is being rebuilt.
• Getting reimbursed for a claim after a fire is easier when you have prepared an inventory of the objects present in your home. There is some free software available that can help to speed up the process.