Foreclosed properties can be a lucrative way to invest in real estate. Although it’s not quite as easy as the late-night infomercials would lead you to believe, the following tips can help you understand the process and decide if foreclosed properties is the best type of investment for you.
When property becomes foreclosed it is first placed for sale through auction. Individuals who are interested in purchasing the property must place a bid equal to the balance due on the mortgage note along with any accrued interest, legal fees and any other costs associated with the foreclosure process.
Foreclosed properties are typically sold “as is.” The prospective buyer will be responsible for making repairs and renovations and paying off any creditor or tax liens attached to the property. In some cases, the foreclosed homeowner may still reside in the home. When this occurs, the buyer will be required to take steps necessary for eviction.
In actuality, many foreclosed properties sold through auctions are not that great of a deal. Most real estate sold through foreclosure auctions are not worth the amount owed on the mortgage note.
When foreclosed real estate is not sold through auction, the property is given back to the bank. It then becomes real estate owned (REO) property, which is also referred to as bank foreclosures or bank-owned.
Once the bank owns the foreclosed real estate, the mortgage note is eliminated. The bank generally negotiates with lien holders to remove or reduce liens placed against the property. If the foreclosed homeowner still resides on the premises, the bank will engage in eviction and have the individuals removed. Occasionally, banks will invest in repairs and renovations and prepare the property for sale.
REO foreclosed properties may or may not be a great bargain. They typically have a higher price than foreclosure homes sold at auction. However, they usually have less headaches and challenges. Prior to making an offer on foreclosed homes it’s important to engage in due diligence and thoroughly investigate the property.
Next, conduct market research to ensure the price you offer is comparable to other homes sold in the area. The goal is to obtain foreclosed properties at a significantly reduced price. If other homes have been selling for $200,000, you should expect to pay around $170,000 to $180,000 for foreclosed property.
Most foreclosure homes require considerable work to return them to livable condition. Obtain estimates to determine the cost of repairs and renovations. If you plan to do the work yourself, determine the length of time it will take to complete the repairs along with the cost of materials.
When purchasing bank owned real estate, keep in mind that banks want to obtain the best price possible. Most foreclosed homes are sold through the bank’s Loss Mitigation Department. In order to obtain the best price, expect to present several counter-offers. If you believe the foreclosed home has the potential to be an exceptionally profitable property, be persistent and remember, virtually everything in a real estate transaction is negotiable.
Last, but not least, you can find incredible bargains on foreclosed properties by seeking out private real estate investors who purchase bank portfolios. When investors purchase in bulk, they obtain houses at wholesale prices. Since they carry a large inventory, they are eager to pass savings along to you. It’s not uncommon to purchase foreclosed properties for as little as seventy cents on the dollar.