Foreclosure Investing
You can purchase a foreclosed home at three stages of the process. They are the pre-foreclosure, the public auction and the post-foreclosure.
There are many pros to purchases a home at one of these three stages.
Buying pre-foreclosures involves working directly with the homeowner and sometimes the lender. Pre-foreclosures can be a great opportunity if done correctly. Discounts off market value can range from 20% to 35% on average and a low cash down payment is possible if structured accurately. Furthermore, since you have sufficient time to research the property, flexible sales agreements can be made possible.
Buying at the auction can also offer excellent discounts. Investing at the auction can account for 35% to 45% savings off market values with a good return on the investment.
We’ve all seen the ads: “Make a fortune in real estate foreclosures in your spare time. No need to quit your job.” Or “How I made millions in real estate foreclosures”, etc.
True, there are some and possibly many instances of considerable sums of money being made by individuals investing in foreclosed properties. However, realistically speaking, it assuredly takes considerable knowledge and capitol to be a money-maker as a full-time investor in foreclosures.
These two factors – knowledge and capital - are the most important elements necessary for success.
First, before trying to find suitable foreclosures or taking any steps toward negotiation, you must do your homework. Some of the most important areas in which to educate yourself are:
1) How to Assess a Property’s Market Value
Obviously you cannot negotiate a profitable transaction if you are not aware of the potential profit to be gained on a property. Experienced investors use a number of resources to arrive at a market value conclusion such as local Multiple Listings, title companies, property assessors, etc.
The property must be investigated for possible encumbrances which could make the purchase undesirable. These possibilities are many such as Junior (second) mortgages, mechanics liens, ownership disputes, etc.
Working with a real estate attorney or title company would be advisable for the new foreclosure investor because laws in one state may not be applicable in another. Property may be covered by mortgages or trust deeds and the legal proceedings in foreclosure will be different, including time frames and their implications.
Sufficient capital to invest is vital, regardless of what the “Get Rich Quick” ads promise you. However, with sufficient knowledge of this type of investment and good negotiating skills, deals can often still be made – despite less than ideal capital. In many instances, an investor is behind the negotiator and shares in the resultant profit.
Once all of the above has been addressed, you are now ready to begin the search for suitable foreclosure investments. One more thing to bear in mind before you start. This is not a 9 to 5 occupation. Finding foreclosure property and negotiating deals often requires long hours including nights and weekends. You should therefore be prepared to put in whatever time is necessary to invest successfully.
The obvious first step in foreclosure investing is finding the foreclosed properties. There are many ways to research them. Among them are foreclosure notices in newspapers, FDIC foreclosure listings, Fannie Mae, GSA, HUD, IRS and VA listings, among others. If you have good connections with individuals in banking or real estate, so much the better.
Once the property is located, information must be obtained as to the outstanding loan amount and the allotted time frames involved. Information can be obtained through County records, a service that obtains the information for a fee or your real estate attorney.
Once you have gotten this information, the negotiating party must be located. Offers can be made through a court auction, a bank or the defaulting owner, if the owner is still within the allotted time frame for legal sale of the property. This purchase is called “Buying a Foreclosure” and is discussed in another article.
Your first opportunity to buy a foreclosed property is at the foreclosure auction. Buying at auction is recommended for the experienced foreclosure investor only. There are too many risks involved for a novice investor who does not have a solid understanding of the process.
Be aware that there are no guarantees offered to assure the potential buyer as to junior mortgages or liens on the property. Additionally, condition of the property or structural defects cannot be ascertained, nor are they disclosed at auction since no warranty of any kind is offered. In other words, at this type of auction “Let the buyer beware.”
To buy and then attempt to “flip” or immediately resell an auctioned property can be equally risky. Unknown problems could cause difficulties for a potential buyer such as obtaining title insurance.
Most importantly, the potential foreclosure investor must bear in mind that certain laws may be different in some states than in others. Consequently, in addition to the contents of this article, investors must carefully investigate foreclosure investing in accordance with their specific state’s legalities and legalities in any other states of interest.
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