Transcripts

Money File-Don't Make A Foreclosure Faux Pas

SUSIE GHARIB: In tonight`s "money file," some things to think about if you`re thinking about buying a home that`s in foreclosure. Here`s Eric Schurenberg, managing editor of "Money Magazine."

ERIC SCHURENBERG, "MONEY MAGAZINE": Used to be buying foreclosed real estate appealed mainly to hardcore vulture investors. Then came a wave of get-rich- quick gurus touting foreclosures as the perfect way for anyone to make a killing in real estate. Today, with interest rates rising and more and more homeowners stretched to make their mortgage payments, the opportunities to strike it rich in foreclosures ought to be more numerous than ever, right? Well, no. The idea that the foreclosure market is full of fortunes just waiting to be plucked has always been more myth than reality. It`s no different today. First, there is no coming bumper crop of foreclosures. True, many homeowners are looking at higher payments, but anyone who`s lived in their home for more than a year probably has enough equity to refinance and put off the day of reckoning. Besides, banks aren`t so quick to foreclose as they once were. They know it`s cheaper in the long run to renegotiate the loan. Second, foreclosed houses aren`t always bargains. The promise of foreclosure investing is that you can get homes cheap by buying from desperate homeowners. But while foreclosures do sell nationally for about 15 percent less than comparable homes, that`s not true in hot markets. In Arizona, California, Virginia, the discount averages just 5 percent and in super hot places like LA, you can`t expect a discount at all. The truth: the foreclosure market consists of a lot of would-be moguls chasing very few good properties. Some well-connected investors can still succeed. But it`s never been a way for anybody to get rich, and that`s not about to change. I`m Eric Schurenberg.