Foreclosed Properties

What Are Foreclosures?

Banks begin foreclosure proceedings when a home owner falls behind on mortgage payments. When those payments are so far in arrears, the bank begins to take steps to recover the money is it owed by those home owners. If there is no possible way for the home owner to raise enough cash to cover the outstanding debts, then the bank has no other choice but to sell the house used as collateral security.

Why Invest in Foreclosed Properties?

When a lender begins foreclosure proceedings, they aim at recovering the amount of money that is outstanding against the property. This can often mean the property is being sold for a much lower price than the real value of the property. Wise investors could find themselves purchasing properties at only a fraction of their true value with just a little research. Buying an investment property below true market price can mean an instant increase in the amount of available equity you have.

There are three options if you’re considering buying foreclosed property. Each opportunity comes with distinct advantages and disadvantages.

Finding Foreclosed Properties

The first opportunity is buying property during pre-foreclosure. Pre-foreclosed properties are properties that have not yet left the hands of the owner. Once you buy this property, you also inherit the debt associated with the property. Oftentimes this is where you can buy the property at its cheapest. Just be sure that you include the debt in your price computations. Also, be wary of situations where the owner is not fully honest with the debts associated with the property. There can be multiple lenders to the associated debt.

What is a Court Auction?

The second option is buying during the court auctions after the property has been foreclosed upon. The disadvantage to an investor in this situation is that if there are several bidders at the auction, this could drive the price higher than you were willing to pay.

When Property Has Been Acquired By The Lender

The last opportunity is when the property has been fully acquired by the lender. Lenders are usually banks and are not involved in the business of real estate. This can be the most hassle-free way to acquire foreclosed property. Usually banks agree to negotiate the price of the property. This is the opportunity to get a good deal without the burdens of other options.

Whatever option y ou choose, you should always inspect the property and the associated property and loan documents yourself. This is especially true when you are dealing with the original property owner directly.

Once you’re sure the numbers stack up the right way, you could easily be purchasing an investment property that is valued so much higher than the price you paid for it. Wise investors also understand that by keeping purchase costs low, they also have the opportunity to build an ongoing source of income as the rent can often exceed the costs associated with owning and maintaining the investment property.

Always be sure to spend some time researching into any potential foreclosed home you’re considering buying and you’ll soon find that there are opportunities to make great profits very quickly.