What are the downsides of purchasing a foreclosed home in order to resell?
Written on December 10, 2009
My friend wants to purchase a foreclosed home in GA and then try to resell. I know the real estate market is bad right now, but are there monetary penalties to purchasing a home and trying to resell right away?
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Filed in: Foreclosure News.
No penalties, the problems are a foreclosed home is sold as is. Your friend may have to have money to get the house ready for resale.
Second problem is your friend will have to make the mortgage payments, property taxes, homeowner insurance and utility bill till the house is sold. Average amount of time a house is on the market is 9 months. That is quite a nest egg your friend needs
You are purchasing a home that is sold “as is” and may not even have the opportunity to inspect it. It is possible that the prior owners have sabotaged the home. I have even heard of people pouring concrete down the toilet to ruin the plumbing. Be very careful that you know what you are getting into and that you have enough cash available for major repairs.
FHA will not insure financing on a home that you have held for less than 90 days. So you will need holding costs for a minimum of 3 months. You can not even accept a contract before the 3 months is over. You can show the home, but no one can write a contract during that time if they are getting FHA financing.
Any gain on the home sold within a year will be taxed as ordinary income, and not capital gains, so be sure you have reserves to pay income taxes.