Buying Pre-Foreclosures as an Investment
Buying Pre-Foreclosures as an Investment
The subject of foreclosure involves the repossessing by a lender of a home due to a homeowner failing to pay their monthly mortgage payments. In the real estate world, there is a concept known as pre-foreclosure sales. This type of sale allows the homeowner to sell their home prior to the bank taking it under foreclosure and they can sell the home for less than what is still owed on the mortgage. The lender will usually institute a time period in which the sale must take place; however, if a homeowner can have this option made available to them it will prevent a foreclosure from being stated on their credit history.
Process for Buying Pre-Foreclosure Properties
For those individuals who are interested in purchasing pre-foreclosure properties as an investment, there is a distinct process that should be followed for those interested individuals to get the property of their choice via means that are the least timely and complicated ones. The first step in the process is to locate loans which are currently in default. This can be done by reviewing the Lis Pendens documents which are public notices of defaults. These documents are available to the public at the local county courthouse or in the newspaper.
Once defaults have been located regarding particular properties, the next step in the pre-foreclosure buying process is to determine what the profit potential of a particular property may be. The best way in which to do so is to find out the market value of the property itself and what the default amount is. By subtracting the default amount from the market value, the prospective buyer can determine if there is enough profit potential on a particular property in order to make a pre-foreclosure purchase a worthwhile one.
Once you have done your background work with regard to the property, it is then time to approach the homeowner. It is important that this is done in a non-harassing manner and investors abide by the laws of their area with regard to this type of situation. One can contact the homeowner in a variety of ways such as letter correspondence, via telephone or in-person discussions. Just remember to be thoughtful while discussing the issue at hand.
After initial contact with the homeowner has been made and that individual has expressed an interest in discussing a possible pre-foreclosure sale further, it is then time to meet again to review documents and determine the price which will be offered to the homeowner. It is also crucial to inspect the property with the homeowner’s consent and see what condition it is in.
Once all of the pertinent documents have been reviewed, it is then time to make an offer on the home. When preparing an offer on the home, it is crucial to calculate certain costs and expenses such as repairs, closing costs, mortgage payments, insurance and taxes and more to make sure that the offer will benefit the investor and not cause the investor to lose money in the long run.
After an offer has been made by the investor and accepted by the homeowner, it is then time to have a purchase and sale agreement prepared. An attorney can prepare the document and also appear at the closing where the relevant documents in addition to a Release of Lien can be signed and later filed.
Foreclosure Investing
There are a few different reasons why an investor would want to purchase pre-foreclosure homes. The first deals with the price of the home. When individuals sell their homes in this manner, they will most likely sell the home for an extremely reasonable price. This entices investors to purchase homes of this type as they are getting the best price for them.
Also, by purchasing pre-foreclosure homes, investors are eliminating possible competition that may be seen at foreclosure auctions. These auctions bring in various amounts of individuals and the investor may have to get into a bidding war with one or more bidders thus increasing the overall price and possibly losing the property to another bidder.
Lastly, purchasing a home via a pre-foreclosure sale benefits both parties. The investor is getting a good deal on the home and the homeowner is getting out of a financial bind. A sale such as this is one which will help out both parties in the end.
Buying pre-foreclosure
Buying an investment home via a pre-foreclosure sale allows the investor to get a good price and help out their fellow man at the same time. By following the procedure outlined above, the investor will find that buying a pre-foreclosure home might just be a great opportunity that they cannot pass up.
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