The 2008 recent recession and the explosion of the housing bubble created a wave of home foreclosures all across the country. From New York City to Santa Monica, foreclosures and other underwater properties became more readily available than ever before.

Unless you’re sitting on a bad mortgage, the glut of foreclosures flooding the market doesn’t need to be a source of stress. For investors and prospective homebuyers the foreclosure epidemic is actually a blessing in disguise.

The housing crisis flooded the market with supply, driving prices in the housing market well below peak levels. Although the tide has begun to shift, it’s still a buyer’s market out there. Savvy investors with a little know-how and the right tools can still make a clean profit by investing in distressed properties.

You still need to be wary. Despite the attractive prices, troubled properties come with their own baggage, both structural and legal. If you don’t mind your Ps and Qs, you might find your self on the wrong end of a raw deal. Before you start parking your money in foreclosed and preforeclosed properties, consider these five common foibles of distressed real estate.

Foundation problems

This structural defect can pretty much destroy your investment. It’s easy to overlook foundation problems, but they still cut into your property’s value. If a home isn’t built on a solid foundation, the stability of the structure will be greatly undermined. It may not happen a day, a month or even a year after you buy the house, but one day that crack in your foundation will bring the entire structure down.

Learn how to eyeball the signs and symptoms of serious structural damage. If you don’t trust your own expertise bring in a professional contractor or engineer to act as a consultant.

Electrical problems

Another serious structural problem that’s easy to miss if you don’t know what you’re looking for. Buy a house with faulty wiring and you’re going to be stuck with a four or five figure bill to get the entire home restrung. Electrical problems are the silent destroyer of real estate investments.

When you’re speculating, carry around a small electrical device so you can test the sockets in a home that has been stripped of appliances and fixtures. If the power has been turned off, bring in your own expert to investigate the wiring.

If the electrical system is damaged, you don’t necessarily have to pass on the property. Just make sure you negotiate a price that takes into account the looming repairs.

Legal problems

Legal baggage is the unseen structural defect. The deed to a foreclosed home comes with all the legal trouble of the previous tenant. If the previous owner was in serious debt, there might be a legal lien against your new home. In the worst-case scenario, your property may already be attached to an active lawsuit. Don’t become a cautionary tale. Research your property’s appellate history before you sign that deed. If you live in the Pacific Northwest you can hire a Seattle foreclosure attorney to do your digging.

Location, Location, Location

A foreclosed property has probably depreciated in value for a number of economic reasons. If you’re hoping to make a profit on your investment, make sure the home is in the right location. This last recession was deep. It will be decades before some neighborhoods crawl back into solvency.


Some foreclosures may look nice on the outside, but on the inside they may hide some dark secrets. Ask around the neighborhood to figure out your property’s reputation. The last thing you want to do is move into a repossessed crack house or a hollowed out meth lab.