Investing in Foreclosures
May 30, 2008 – 9:30 pmIf you are new to foreclosures and investing in real estate in general, it might be a good time to sit down and think about all the variables before getting too exited. The first important note that should be mentioned is that foreclosure investing is not for everyone, especially if you have little or no real estate experience.
So what exactly is foreclosure investing? Just like the name suggests, foreclosure investing is when a person chooses to participate in a public sale of a property that is being mortgaged due to the foreclosure of the loan that was used to purchase the asset. In other words, the initial owners could not afford to make the monthly loan payments resulting in a foreclosure.
Most people might be tempted to envision foreclosure investing as an extremely profitable business transaction that can be structured and concluded in a few weeks. Naturally, looks can be deceiving especially to the untrained eye. The truth of the matter is quite more unsympathetic because if you make one simple uncalculated mistake the outcome could dictate the demise of your entire life savings.
Foreclosure investing can be conducted in any one of three stages. The first is called pre-foreclosure and as the name clearly denotes, is when the property is bought straight from the original owner before it goes on auction. The second opportunity would be to buy at the actual foreclosure auction. Lastly, the final option which is also one of the safest alternatives, entitles buying the property from the leader or loan financer, if it was not sold during the auction. These are normally referred to as bank owned or real estate owned properties (REO).
Now that we have covered all three possible stages for buying a foreclosed property, it is time to illustrate why anyone interested is this type of investment should take a closer look at the overall picture. The most evident would be that individuals with little experience in the matter could easily pay way more than what the property is valued at.
Nowadays banks prefer to sell properties before actual foreclosure, advertising well in advanced with the hope of motivating more investors. In this way they avoid having to retain the home for a long period of time if it does not sell. Promoting this strategy will also permit potential buyers to take a closer look at the home and even receive help with financing.