Did You Know There Have Been More Millionaires Created From Real Estate Than In Any Other Business? One Of The Most Profitable Areas Of Real Estate Is Investing In Foreclosures .
Foreclosures result when people can’t afford to make the payments on their house and end up losing it. The concept of foreclosure property investment represents a way for you to purchase property at an undervalue and then resell the property at a higher price later. When acquiring foreclosure real estate the idea is to “buy low and sell high”.
Investors can often pick up the properties for pennies on the dollar. There are a lot of other great ways to invest in real estate .
I’m not saying foreclosures are the only way you’re going to make money. There are some great courses out there that teach other ways to invest in real estate. However, you just can’t beat the profit potential of foreclosures!
It’s sometimes possible to pick up a property for half its value. That means tremendous profit! If you’ve been watching the news, you know that the number of foreclosures is growing nationwide.
If you’re not familiar with foreclosures, there are 3 different stages of the foreclosure process:
- Pre-foreclosure
- Foreclosure auction
- REO (Real Estate Owned)
Pre-foreclosure:
Pre-foreclosure is like a grace period The homeowner is being warned that they’re in default and need to do something about it, but at this point, the lender is unable to claim back the property and sell it to recoup their costs. The length of the grace period varies, as it’s determined by state laws. Some states allow the grace period to last for as long as 6 months, but many states have shorter periods.
Pre-foreclosure is the most crucial time in the foreclosure process. It is during this period that you as an investor stand to make the largest profits and negotiate a favorable deal for both the owner and the bank. An investor buys the property directly from a property owner who has fallen behind on the mortgage but has not yet been seized by the bank.
Before investing in a pre-foreclosure property, it’s really important to confirm that the house really is in foreclosure. The reason being, that if the owner pays off the debt, the reinstatement stops the foreclosure process, so it’s important to find out if a property has been reinstated before proceeding. The best way to check if the property has been reinstated is to call the trustee or attorney assigned to the foreclosure. The trustee cannot typically answer other questions about the property; they can just let you know if the property is still in foreclosure or not.
Foreclosure Auction:
It’s important to get up-to-date auction information and act on it as quickly as possible. Develop a system to keep track of properties that interest you. A good tracking system is important since most successful auction buyers pursue several properties sometimes over a period of several months.
After you find a property online, it’s a good idea to drive by the property to get a better idea of the property’s condition and the type of neighborhood.
For some buyers and investors, driving by the property has also facilitated a casual meeting with the owner (you may be able to still work out a last-minute deal before the auction) or yielded a wealth of unexpected information from a talkative neighbor.
After a property is scheduled for a foreclosure auction, the owner has a chance (typically less than a month) to stop the auction by paying the amount owed to the foreclosing lender.
It’s also not uncommon for auctions to be postponed without a new date being published. You can call the trustee to find out beforehand.
It’s important that you find out as much as you can about the estimated market value of the property, how much is owed on the property and if the owner has any other liens against the property. If there are outstanding liens on the property, the winning bidder at the auction may be responsible to satisfy these liens in some cases, so check this out before you bid at the auction. This is all public information and you can research on your own with the county recorder or you can use a real estate attorney or title company.
At the auction, the opening bid is based on the total amount owed to the foreclosing lender and may include fees incurred because of the foreclosure proceedings. If no one bids above that amount, the foreclosing lender will take possession of the property. It’s important to know this amount so you can decide if the auction represents a potential bargain purchase when the opening bid is compared to the property’s present market value. A reasonable purchase amount at auction is at least 20 percent below full market value, and much better deals are often possible. Other factors to consider are the rate of real estate appreciation in the area and the potential for increasing the property’s value by making repairs and improvements.
REO (Real Estate Owned):
When a property is sold through a foreclosure auction, its owner usually owes more to the lender than the market value of the property itself. This is often a barrier to selling the property, and sometimes such foreclosure auctions do not draw any bidders. As a result, not many foreclosure auctions end with the sale of the property, rather the title reverts back to the financial institution holding the lien. Properties in this category are referred to as REO (Real Estate Owned) properties.
After the bank takes possession of the property, the mortgage loan disappears and the financial institution deals with any items owed by the prior borrower, such as homeowner association fees. The financial institution also tries to get the IRS to remove any tax liens against the property. The current owners are usually evicted and often repairs are made to damage on the property in order to make it more attractiveto potential buyers.
There is no risk to you when purchasing a REO as opposed to a foreclosure auction property because the lender has already cleared the title issues and evicted any tenants or former owners. Also, you will be able to inspect the property and get title insurance.
You should have a property inspection done by a licensed inspector before you to make a final decision to purchase. The reason being that when you purchase an REO property, most of the time they are sold in an “as is” condition so you will have to pay for all the repairs yourself. Quite often the properties are in disrepair and not well maintained. Also, another disadvantage of these kind of property investments is that you will not know the history of the property, as the bank is not required to complete a transfer disclosure statement. Expect to do more due diligence. You may be competing with other investors so expect that there may be multiple offers. The process may take longer than buying from an owner since the banks are overwhelmed right now with REO properties.
If you’ve recently purchased a foreclosure property in an area rifled with foreclosures, you can’t expect to throw up a coat of paint and resell the home within a month. In short, homes don’t just sell themselves.
Investing in Foreclosures
When you decide to become involved in real estate investment by specializing in foreclosed properties, you will need to first determine your niche. In other words, you should start off by targeting one type of property.
Helpful Advice About Foreclosure Home Investment
You may also consider using your house Foreclosure investment as a rental property. All those people who are losing their houses still need a place to live, and they find themselves renting.
Tax Foreclosure Properties: Tips for Buying Wisely
When you buy property, you aren’t just buying a building and the ground it is on. You are also purchasing a great big mortgage, which will seem to grow a life of its own.
Short-Sale Pre-Foreclosure Investing
Mosca: In your book “Short-Sale Pre-Foreclosure Investing,” you list your mission statement as, “to teach others how to successfully buy and sell property and increase their quality of life.
Should I put an offer in on the new foreclosed property?..
There are two main factors you need to take into consideration, is this home for me to live in or an investment property and how is the market right now?
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