Everyone wants a deal and usually I get at least two or three calls a month with inquires about foreclosures. Most people believe this is a fast way to make money. Just buy one, fix it up and then “flip it to the next buyer” and based on real estate seminars, you will make a bundle of money.

It “is not necessarily true”, given the state of the current market, given the herd mentality of the public’s perception and given the problems that arise in buildings with a number of foreclosures.

In Chicago there is currently a building with a large number of foreclosures. The building was originally a rental building and became condominium. Owners were allowed to purchase the units with little down and the developer marketed the condos to investors who were told that the tenant’s rent would more than pay for the upkeep of the unit for approximately two years.

Tenants are now moving out, and many of the original investors are walking away from their mortgages. Given this scenario, the building is not collecting association fees from these foreclosed condos. What happens then to the neighbors in the building who are paying their mortgages?  There is collateral foreclosure damage.

Owners now have to make up the difference for what the foreclosed units are not paying in assessments. The current units may even have to do some of the chores that would be normally done my maintenance people or ultimately eliminate the management company if association fees do cover expenses. It could become a major problem.

According to an article in the New York Times, bargain hunters are reluctant to purchase in many condo buildings when the upfront costs are low because they may ultimately have to pay unexpected fees given that many current owners have defaulted on their mortgages.

In many instances, to avoid foreclosure, the owners can rent out the property covering some or most of their mortgage payments. This approach too can present problems for owners who reside in the building. In the Times article, a person who bought his condo in downtown San Diego points out that many owners rented their units out to renters who leave beer bottles in the lobby and hold late-night parties. And he is agitated by the constant beep of a smoke alarm from a neighboring vacant unit, indicating a battery needs to be replaced.

In summation, the idea of purchasing a foreclosure sounds like a great idea in the current real estate market. You may think that you are getting a bargain but keep in mind the ramifications of this type of purchase. I recommend you do your due diligence when considering a foreclosure.

Check out the minutes of the building for the last six months to a year before you consider purchasing. Find out exactly if there are any loans or lines of credit taken out by the association. Find out what is in the reserves and ask what the owner’s occupancy rate is. If it is below 70%, I would question whether the building is a decent investment. Also if possible, check to see if the building has a five year plan.

Sheldon Salnick is a realtor with Rubloff Residential properties and has been doing Chicago Real Estate for over 18 years. Check out his website at www.SheldonChicago.com for tips on buying new construction or a resale condominium.