While there is a lot to gain from tax foreclosures, there is also a good amount of risk. Much like any investment, the higher the risk the higher the potential profit. However, tax foreclosures can be risky, but why? Here are 4 reasons why tax foreclosures can end up being a worse deal than expected.
- Priority: There are cases where you can purchase a home that has not had its debt fully paid out you may not get your money back. Make sure to do your research that another interest group, such as the IRS, may get the first say on the house when you already move forward with the purchase.
- Bottle-Necked Cash: When you put the money towards the house it will stay there until the debt gets paid off. This may mean you have to wait some time before the property is actually home, and it may lose you on cash flow or interest.
- Low Quality Property: Sometimes after buying the home you may find that the home is not as ideal as you expected potential buyers to find it. Some issues like location, colors, layout, may all be issues that you do not see before it is too late.
- Damage: Sometimes tax foreclosures do not allow the bidders to get a deep dive into the property before purchasing. There can be dozens of hidden issues that may end up costing thousands of dollars, which brings the cost of the home way above market value than you initially expected.
While there is a lot to gain from tax foreclosures, there is also a lot to lose. Make sure to do all the research you can but be aware of risks you cannot prepare for.
