When making the decision to invest in real estate one of the best places to look in terms of value is in foreclosures. Economic downturns force more homes into foreclosure which creates the perfect time for an investor looking to purchase property for private residence, rental or resale.
Banks are dumping foreclosed real estate left, right and centre because they can't keep up with maintaining the property, due in large part to foreclosures being at an all-time high. When a bank forecloses on a home, they assume the full responsibility of re-possessing the home and any and all additional costs that the home may require. If the inventory costs of a home keep going up, the bank can no longer maintain it, and will have no choice but to sell it. They want to get rid of it quickly to avoid losing even more money. They want to sell it to you.
One of the biggest advantages to purchasing a foreclosed property is the low price. Most foreclosures sell for 5 - 10% below market value, although some may sell for as low as 50% below their true market value. It simply depends on the amount of equity that previous owner built up in the property. Most homeowners find that they can make a significant profit by reselling a home that was purchased in foreclosure. Due to this profitability, foreclosures are excellent for building equity, renting, and even making a personal fortune through wise investments.
The sub prime lending crises has multiplied the number of foreclosures that banks are being stuck with.
Banks and other lenders that sell foreclosed homes are usually in a hurry to sell. This creates more flexibility for the purchaser to negotiate financing options, down payments, closing costs, and other miscellaneous costs associated with home buying.
Foreclosures are frequently vacant so the purchaser does not have to wait for previous owners to move out. Foreclosures that are immediately available for move-in eliminate delays that often happen with the purchase of a home.
Banks are in the business of financing real estate, not owning it, and foreclosed real estate is the worst ownership of all for lenders. Utilities, vandalism, upkeep, safety issues, are all nightmares to a bank trying to maintain a foreclosed home. If you're looking for cheap, easy to get homes or property, then look no further than buying a foreclosed home from a bank. Since the bank wants to get rid of the home quickly, you can haggle your way down to a price that some would call a steal.
Before taking that leap into investment it is important to do research and to understand that there are advantages as well as disadvantages to buying a foreclosure.
- Due to the economic hardship that forces a home into foreclosure, these homes may be in poor condition. The previous owner probably would not have been able to afford proper maintenance and necessary upkeep of the property. Significant repairs and renovation may be required with the purchase of a foreclosure.
- Because foreclosed homes are sold as is, it is necessary for potential buyers to do more research. More paperwork is necessary and caution must be exercised due to the lack of guarantees.
- Foreclosed properties may have liens or property title liabilities. These hassles can make the process of buying foreclosures more expensive and can increase the paperwork even more.
- Sometimes the former owners of a foreclosed property are in denial and refuse to leave the home. This can complicate and delay the move-in requiring eviction to be served.
- The first is that you want to find the best deal possible.
- The second is that you have found the home of your dreams, and it happens to be a foreclosure.
Throughout the foreclosure investing process you will find homes that are in all stages of foreclosure. The stages of foreclosure include:
When an opportunity has been located, it is important to determine where the borrower is in the process. If the foreclosure is in step 4, then borrower is no longer in the process at all. However, if the foreclosure is in steps 1-3 you will still need to be negotiating with the bank and the borrower(s) to get all parties to agree.
The best time to buy a property at a discount is during step 1. At this point, the bank is alarmed about their loan going bad, but no additional expenses have been accrued due to lawyer fees and the foreclosure lawsuit process. As the process continues the bank begins to accrue extra fees that they want to "re-coup".
It is essential that you quickly determine where the borrower is in the process. If the borrower is early in the process, then you have more opportunity to work out an agreement with the borrower and the bank.
What you do with a foreclosed home after you purchase it is up to you. If you want to make even more of a killing, it would be a good idea to spruce the home up a bit, and then resell it on the "retail" real estate market. Some savvy people have been doing this for years. If there's one sure-fire way to get into the real estate business, it's buying foreclosed property.
You can also purchase foreclosed homes for your personal residence. If you want a vacation spot anywhere in the country, this is the one method that I can recommend. For the price of a nice timeshare, you can have full-time, year-round ownership.
Clearly there are both advantages and disadvantages to buying a foreclosed property. It is necessary for a purchaser to understand these and to perform research before making any offers. Buying a foreclosed home can be a very profitable investment, but it can also prove to be more hassle than it’s worth.
