Although homes in Fresno, CA, sell for $389,954 on average, Jimmy Fuentes just snagged a three-bedroom ranch there for $185,000. His secret for finding a deal? It was a foreclosure, which was hiding a nasty surprise inside.
“Water damage in the primary bathroom was extreme but was not visible from the street,” Fuentes says, adding that typically with foreclosures, “You are purchasing blindly.”
Fuentes spent $22,000 on repairs and turned it into a rental property. “It’s renting for $2,100 per month, with a 12% annual yield on investment,” he says. “In addition to the 34% price cut below market value, foreclosures do not require a lengthy price negotiation process. Cash deals are sealed in days, not weeks.”
However, Fuentes (who has purchased several foreclosures and helped hundreds do so as a hard money lender consultant) warns, “foreclosure investing is a game that demands steel nerve.”
Not for the lighthearted
Nationwide, one in every 3,939 homes faced foreclosure in July, an 11% increase from June and a 13% rise from July 2024, according to data analytics firm ATTOM. CEO Rob Barber noted, “The steady climb in filings suggests growing pressure in some markets.”
Foreclosures often end up in the hands of real estate investors because these properties are frequently riddled with risks that regular homebuyers can’t stomach.
“It’s 50% preparation, 50% balls, and not for the lighthearted,” explains Des Moines, IA-based investor Jacob Naig. Foreclosures tend to be in a dilapidated state, and since banks are often eager to unload these homes quickly at auction, this may leave mere days to kick the tires. “You rarely have a chance for an interior inspection,” Naig explains. “So you have to take an educated guess and a calculated risk.”
One of Naig’s most memorable foreclosure gambles was a three-bedroom in Beaverdale, IA, that sat empty for two years. It was falling apart, with bursting pipes, ancient electrical, and a half-collapsed garage. “I bought it for $78,000, way below market value, but I needed another $45,000 for repairs,” he recalls. “Within five months, the property was completely renovated and sold for $175,000.”
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Some foreclosures may even have residents who refuse to budge.
“The last foreclosure I purchased for $307,000 was a home in Miami that came with a squatter,” recalls Florida investor Branden Rivero. “I evicted the squatter once, and they came back again! After that, I put plywood in all the windows and sold it as-is to another investor for $395,000.”
The auction scene
The foreclosure auction process can also be intimidating for the uninitiated.
“Auctions run the gamut from a low-key annual county meeting to a rowdy room akin to The Running Man,” Naig says. The auction for his Beaverdale purchase had a “barracuda of an auctioneer. There were a dozen people in the room, three or four bidders. The key is not to get sucked into other people’s energies. My number was on a slip of paper, and I never went over that number. That discipline is what differentiates a strategic investor from an emotional buyer.”
Intrigued rather than scared? One surprising place to find upcoming foreclosures is in the local paper. “It seems like a relic from the past, but it remains one of the most reliable early indicators that a property is headed to auction,” says Naig. Even if you can’t inspect the property, at least do a drive-by—and, if you like what you see, arm yourself with preapproved financing or cash—and build 20% more into your budget to cover all the fun surprises in store once you open that door.
“I’ve witnessed people make a fortune at auctions, but I have also seen egos get costly,” says Fuentes. “Know your ceiling and walk away if it gets too high. Don’t let adrenaline add to your sums.”