“The mortgage foreclosure process creates three sets of real estate investing opportunities: the ‘””‘Default/Pre-Foreclosure’””‘ phase, the ‘””‘Auction/Sale’””‘ phase and the ‘””‘REO’””‘ phase. This article discusses the risks and the rewards of each opportunity.
Buying Pre-Foreclosures
Buying pre-foreclosures involves working directly with the homeowner and sometimes the lender. Your goal is to create a Win-Win scenario. One win is for the homeowners (they make a sale) and one win is for yourself (you buy the property at a substantial discount).
To accomplish a successful purchase, most experts recommend the following: (1) locate loans in default, (2) evaluate and narrow selections to pursue, (3) inspect the property, (4) evaluate the property owner’s needs, (5) determine the market value of the property, fix-up costs, potential sales price and profits, (7) arrange default work out by negotiating with the owner and the lender, (8) close on the property, repair and resell it quickly.
Pros: This is a great investing opportunity if done correctly. Discounts off market value can range from 20% to 35% on average. A low cash down payment is possible if structured properly. You have ample time to research properties. Unique and flexible sales agreements are possible.
Cons: It is sometimes difficult to contact the property owner. You will usually have a lot of competition. The court house research can be cumbersome. You may need to negotiate with the lien holders. ”