Foreclosure Investing - Comparing the Risks and the Rewards
Foreclosure Investing - Comparing the Risks and the Rewards
The mortgage foreclosure process produces three sets of real estate investing opportunities: the "Default/Pre-Foreclosure" phase, the "Auction/Sale" phase and the "REO" phase.
Buying pre-foreclosures often involves working directly with the homeowner and sometimes with the lender. Your goal must be to produce a Win-Win scenario. One win is for the homeowners who make a sale and the other win is for yourself because you buy the property at a substantial discount.
To execute a successful buy, the following is recommended by the experts: First you need to locate the loans in default. Secondly assess and narrow down your selections to pursue. Thirdly, examine the property and judge the property owner's needs. Fourthly, you need to determine the market value of the property, fix-up costs, potential sales price and profits. The next important step is to arrange default work out by negotiating with the owner and the lender. And last but not the least, make sure to close on the property, repair and resell it as soon as possible.
Advantages: If done correctly, it is a great investing opportunity. Discounts can range from 20% to 35%, off market value, on an average. If it is structured properly then a low cash down payment is also possible. You can research properties as there is ample of time. Unparalleled and flexible sales agreements are also possible.
Disadvantages: It is, in many cases, difficult to reach the property owner or to contact him. Huge competition may be expected. Often a need may arise to negotiate with the lien holders.
Buying At the Auction:
The most rewarding way to purchase properties is buying on the steps of the court house at an auction. However, it can be dangerous and unsafe at the same time. The property is then auctioned in public and sold off to the highest bidder. The process begins with momentum and goes on smoothly and finishes quickly. While bidding at an auction, you will compete against the lender and other investors.
Auction buyers need to keep these steps in mind: Firstly, research properties prior to the sale date and pursue realistic opportunities. Secondly, calculate and evaluate the values and potential profits. Thirdly you need to determine the bid price and finally you should follow the property to the auction and participate.
Positive aspects: It offers very good to excellent discounts. Investors can achieve 35% to 45% savings off market values and they can earn an excellent return on investment. You can easily hit the jackpot in this investing method.
Negative aspects: Auctions are frequently postponed, wasting your time and effort. It is very rare to assess and inspect the property. To be on the safer side, you should have a title search performed, which can be costly. Huge cash outlays deter most investors (note that this can also be seen as a benefit), unlikely. Certified checks for 10% of the purchase amount may be required with the balance due in weeks, days or even hours. Out of the way research can lead to devastating results.
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