Is a Foreclosures House a Good Real Estate Investment?
Probably everyone knows something about foreclosures. At a first view, it looks that you can buy some kind of bargain at foreclosures sale. Is it real bargain?
The answer is Yes… and No.
In other words, the buyer only can answer on this question when he/she makes own research and perform analysis regarding specific property. To clarify it, let’s look in details.What is a foreclosure?
As a definition, it is the procedure of enforcing a creditor’s rights when owner is in default and a debt (loan) is secured by a lien on the property. To simplify it, when owner refuses to make regular payments in accordance with loan contract, a creditor may initiate foreclosure to sell property and cover the loan amount.
Sometimes this term associates with tax sale auctions too but it is totally different procedure and is covered in another chapter. The foreclosures are different from state to state and could be judicial and non-judicial. It depends on what legal instruments, mortgages or deeds of trust, are used in specific state to secure a debt. In any cases, the procedure includes three stages:
- Pre-foreclosure. This stage begins with recording Notice of Default and continues for about 4 months.
- Foreclosures Sale. It is a public auction. Each state and local authorities have own rules to conduct Sales Auctions.
- Real Estate Owned by Lender (REO). If specific property is not sold on public auction, the lender takes ownership of the property (REO) and, then, sells it (usually through accredited Real Estate Brokers).
For guide to Government Auctions & Foreclosures click here. It helps you avoid many cost mistakes!
How to profit from Foreclosures?
The most critical part in Real Estate Investment is a “smart buy”. Remember... we make a profit, when we buy, and just transfer it in our pockets, when we sell.Pre-foreclosure. For this stage you can still buy home directly from homeowner. The main advantages of buying at this time are comparably low competition and ability to communicate with owner personally. Depends on your intention of future use that specific property (rental, fixer upper, flipping, etc.) you can apply various strategies for buying home directly from owner.
To learn the top profitable strategies we recommend course here Auction Sale. As it was mentioned above, it is a public auction that is conducted in accordance with State and Local Code and Rules. The main things of buying at auction are a preparation research and bidding strategy. To buy right property at right price you should make your own research and evaluation – the location of the property, the condition of the property, the liens against the property, the market value, etc. For good strategies, tips and ideas we recommend course here. It covers all stages - pre-foreclosure, auction and REO. REO. When specific property was not sold at auction, the lender takes ownership of the property. Now, it is up-to-lender what to do with the property. Sell it immediately or not? Sell it through Real Estate Broker or use own resources. It is far from real to think that lenders only want their outstanding mortgage back and fees. Lenders are in a money business and do it professionally. Nevertheless, you can find here good strategies how to work with lenders and make it very profitable.
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