A few things to consider. First the bad. Inspections miss things and distressed homes are risky. The amount for repairs could run up to as much as you originally paid for the house. Also, that is something that has to be paid either at the beginning as part of the mortgage, or out of pocket when something breaks. (Recall, if you will, the plumbing exploding at Lisa and JD's house less than a year after they moved in). Second, there is always the possibility that 4+ years down the line, it will continue to be difficult to sell the house when you are ready to move on. That, of course, is a risk that any home buyer takes.
Now for the good. Assuming you've taken the above into account in what you are planning to be able to pay, I don't really see the problem in buying a house that will cost you less per month than renting. The point of renting is that it is ostensibly less expensive than buying and the remainder can be invested in something higher yield than real estate. If you are paying less per month for the mortgage and insurance and property taxes than you were for rent and renters insurance, I don't see a financial downside.
When you say distressed homes are "risky", do you mean financially or in terms of condition and repair? Repairwise, I suppose someone who slipped into default on their mortgage is perhaps more likely to also neglect major repairs on their house, but the truth is any house you buy could have unknown or unexpected problems, even in a normal sale.
Financially, I'm not fully educated on the consequences to the buyer of purchasing a foreclosed home; the only thing that comes to mind is that the title might not be clear (which apparently happens in a lot of normal sales, too, usually due to something minor like a missing signature on some old document). With foreclosures, you might have to evict the now-former owners, but with REO and HUD I assume that would already have been taken care of. As far as I know the foreclosure only continues to affect the previous owner, not the house or its new buyer.
Additionally, with regular sales you can make on offer conditional on certain repairs being made. With foreclosures and short sales they are often so as-is.
Now for the good. Assuming you've taken the above into account in what you are planning to be able to pay, I don't really see the problem in buying a house that will cost you less per month than renting. The point of renting is that it is ostensibly less expensive than buying and the remainder can be invested in something higher yield than real estate. If you are paying less per month for the mortgage and insurance and property taxes than you were for rent and renters insurance, I don't see a financial downside.
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Financially, I'm not fully educated on the consequences to the buyer of purchasing a foreclosed home; the only thing that comes to mind is that the title might not be clear (which apparently happens in a lot of normal sales, too, usually due to something minor like a missing signature on some old document). With foreclosures, you might have to evict the now-former owners, but with REO and HUD I assume that would already have been taken care of. As far as I know the foreclosure only continues to affect the previous owner, not the house or its new buyer.
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