The biggest danger is the shape of the house. In your scenario, that $400K appraisal might not be accurate since it was probably based on teh shape of the house prior to sale. Obviously, people know ahead of time when they are going to default so they react accordingly. There have been not infrequent horror stories about foreclosed houses having all the innards stolen even down to the copper pipes that the ex-owners ripped out to sell for scrap metal. One news story from years ago told of the ex-owners coming back minutes after the sale and taking all the outside foliage (yep, dug up bushes, yard trees etc. and took them). So all of a sudden that $200,000 you paid for that $400,000 house now costs an additional $200,000 to put back into shape so you can get a use and occupancy permit to live there. This is why many of these houses are bought by contractors, etc. who can do repairs themselves to keep costs down and then they flip them - unless you are in the construction trades, this very rarely works out for the average Joe.