Foreclosures can be an attractive option for real estate investors and home buyers alike because they offer the potential for significant savings on property purchases. However, buying a foreclosed property is not without risks and hurdles. If you’re considering a foreclosure as your next home or real estate investment, here’s what to consider before making a decision.

A foreclosure occurs when a lender takes possession of a property because the borrower has failed to make mortgage payments. The lender sells the property to recover the outstanding loan amount. Foreclosures are typically sold through auctions or as bank-owned properties.

Foreclosures come with several advantages for potential buyers. Foreclosed homes are often priced below market value so lenders are motivated to sell the property quickly to recoup their losses and move on. This can mean significant savings compared to purchasing a non-foreclosed property. For real estate investors, foreclosures can be a great source of rental income. Buying at a lower price can increase the potential for a higher return on investment through rental yields. Flippers may be attracted to foreclosures because they can often be renovated and resold at a profit. No matter what your intention with the home, foreclosures can be an attractive option because there is generally less competition for them. Foreclosures may attract fewer buyers than traditional sales, potentially reducing competition and giving you more negotiating power.

While foreclosures can offer great deals, there are also risks and considerations to keep in mind. Foreclosures are often sold As Is, meaning you might be purchasing significant repair and maintenance tasks from a previous owner who couldn’t afford the upkeep. A thorough inspection to assess the property’s condition can abate some of that risk, but foreclosures are not for those who expect a move-in-ready house. Foreclosed properties can also sometimes come with legal complications such as unresolved liens or disputes over ownership. A title search is essential to uncover any potential issues that may not make the purchase worth your while. The timeline for buying a foreclosure is also longer than that of a traditional home.

After weighing these pros and cons, it’s up to you to decide if a foreclosure is a good deal for you. To assess the net benefit, you can do a few things. Research the market value to determine if the price is competitive. Compare the foreclosure with recent sales of similar properties and then add in the cost of renovations or repairs to determine if it’s worth your time, effort and money. Don’t forget to include legal fees and include time for potential delays in both the purchasing and repair process. If the foreclosed property still appeals to you, hire a home inspector to evaluate the property for issues that may not be readily apparent. From here, you can make an informed decision about proceeding. When it’s time to buy, work with a real estate agent who specializes in foreclosures and consult with a real estate attorney on any legal issues that come up.