Overrated: Making money from foreclosures a route to ruin


Thanks to television shows such as "Flip This House," many Americans have caught fix-up-and-flip fever, buying foreclosures and attempting to resell them after minimal improvement for big bucks. The reality of this strategy wasn't great before the housing bust, and for the unsavvy investor it can be suicide now.

Buying a foreclosed home isn't like shopping Sunday open houses. The homes often go up to bid without inspection, clear title or even vacancy; squatters could be cooking meth even as the gavel falls. The family who has lost the house might even still be living there, forcing you, Simon Legree, to evict them. They often take revenge on the house before they leave, too.

Financing a foreclosure purchase is even dicier. The selling bank wants its money immediately, and finding deep pockets willing to loan against a foreclosure is very difficult in a falling market.

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Yes, some shrewd investors still make money flipping or renting foreclosures, but some people also win at roulette. That doesn't mean that putting your life saving on red to win makes sense for most of us.

If you are determined to make money on the foreclosure industry, the safer bet is to write a book, start a web site or offer workshops on how to make money on foreclosures. That industry is still thriving, proof that there is still a sucker customer born every minute.

For a counter view by WalletPop's Brett Widness, read The price is right.