Are Bank Foreclosures a Good Real Estate Investment?

Bank foreclosures are a popular investment choice because they offer the chance for earning a decent profit margin. On the flip side, bank owned homes can be risky investments and tend to be more difficult to obtain because sale negotiations occur through mortgage lenders. While it can be rewarding to invest in distressed properties, careful consideration should be given before making an offer.

Most bank foreclosures require extensive repairs or renovation. Rarely are these homes in perfect condition, so investors must either engage in physical labor or hire contractors to perform necessary work. Prior to buying bank owned real estate it is crucial to thoroughly inspect the home and engage in negotiations to obtain a reduced price when repairs are substantial.

Bank owned real estate which requires considerable repairs can potentially reap higher profits than homes in good condition. However, the cost of hiring contractors can quickly deplete profit margins. Investors who do not have a reliable work crew in place should carefully consider the risks of buying severely distressed homes.

Bank foreclosures are usually less risky than foreclosure properties sold at public auctions. Investors able to purchase foreclosures homes with cash can usually negotiate good deals at auction.

Real estate sold through auctions often has creditor and tax liens attached. Buyers must be prepared to pay all associated costs when placing bids. Having liens removed can be a time-consuming and costly process.

When foreclosure properties are not sold at auction the property is returned to the bank. At this point, properties become known as real estate owned (REO) and are sold through the originating mortgage lender.

Bank foreclosures are generally sold through the lender's loss mitigation department or their real estate agent. Most banks want to sell foreclosure properties quickly. However, this does not mean the property will be priced lower than other homes on the market. Banks want to recover as much of their financial loss as possible and negotiating the price can be a challenging task.

At present, most banks are selling distressed real estate for approximately 95-percent of the note value. When bidding on bank foreclosures, investors should be prepared to engage in multiple counter-offers. Rarely do lenders accept the first offer provided.

Oftentimes, novice investors become so enthralled with the house they end up paying full price. It is important to set a maximum price and be prepared to walk away if the lender is unwilling to negotiate. There are an abundance of bank foreclosures to choose from, so keep options open to ensure you obtain the best real estate deal.

One little-known secret to buying bank foreclosures is to purchase properties through private real estate investors who purchase bank portfolios. When investors purchase portfolios they obtain wholesale prices for each property. Oftentimes, savings can be 30-percent or more; providing the buyer with instant equity.

Buying wholesale real estate through private investors allows the opportunity to reap higher profits. Wholesale properties are enticing for investors who engage in house flipping and those who are seeking rental properties.

Investing in bank foreclosures can be a rewarding and profitable experience as long as risks and benefits are carefully weighed. To be successful with foreclosure investments, investors simply need to become educated about the process. Before buying any real estate it is imperative to engage in due diligence. After purchasing distressed properties, work with professionals to ensure the work is done properly and efficiently.