Which to buy: short sale or foreclosure?
Benefits to buying foreclosed homes
According to Lender Processing Services, nearly 2.2 million homes in the U.S. were in foreclosure in April. On average, they sell for about 30 percent less than a nondistressed property, Daubenmeyer says.
In April, the median price of a move-in ready foreclosure was $185,000, according to Re/Max. A nondistressed property's median price was about $267,300.
Such deals are possible because homebuyers can negotiate closing costs and price in foreclosure sales, says Elaine Zimmermann, a real estate investor in Memphis, Tenn. Buying a foreclosure typically is faster than buying a short sale, and an investor can buy a home for rock-bottom dollar. The national average of a foreclosure that needs some work may cost around $107,600, according to Re/Max. The investor could rent out the home or resell it after fixing it up.
Investors should expect to spend no more than 5 percent to 10 percent of the purchase price to renovate a foreclosed house, Zimmermann says. "Your time and trouble are worth something, and your energy," she says. "You should come out ahead."