Foreclosure Investing

An excellent method to mint huge profits in the real estate market is to enter into the slightly complex world of foreclosure investing. This method offers you the chance to pick up properties from a foreclosure auction at rock bottom rates, which can then be flipped over at a tidy profit.

A homeowner facing financial difficulty may not be able to pay the mortgage installments. Once the installments stop coming in, the lender might send a notice to the homeowner warning him/her that the home might be foreclosed, in case the pending installments are not cleared immediately. If, in spite of the reminders, the homeowner is in no position to pay the pending installments, then the lender might start the foreclosure process. The home will then be auctioned off, in order to recover the maximum amount possible for the lender. Most of these homes are sold at highly discounted rates, since only bidders that have sufficient knowledge about the bidding and flipping process would be present during the auction.

If you were interested to spread your wings by this process, then it would be wise to tie up with a knowledgeable mentor, specializing in such deals. This will make the entire process easy and will ensure that your money is not invested in a property that does not have any demand or where your purchase price has been too high. You will also need to develop good contacts with various lenders or banks, since most of them are discreet to announce their foreclosure auctions, due to a fear of adverse publicity affecting their operations. Once you have developed good contacts, then you could get a list of properties that the lender might have short listed for foreclosure.

You can then check the various properties externally, before making your decision. Since many homeowners are already in a bad financial state, they might not have maintained their properties in a presentable condition. You will thus need to hire the services of an experienced contractor, who can calculate the exact cost of rehabilitating the property. This calculation is critical before you make an offer on the foreclosure auction, since if the actual expense is very high, then your profit margins could be wiped out or you could even suffer a loss in the deal. You might not be allowed to check the property from inside and might thus need to make an estimated guess regarding the expenses. If you do manage to pick up a property through foreclosure that is in need of rehabilitating, then you could either rehab the property yourself or you could just flip the property to another investor, albeit at a lower margin.

A property might also be available for sale, before the foreclosure auction takes place. This is called as pre-foreclosure and this will require you to convince the unfortunate homeowner as well as the lender or lenders to sell the home to you. There might also be cases, where the home might not have been sold during an auction and would be stuck with the lender. You could then negotiate a deal with the lender, in order to purchase that property. Such deals are also known as REO's [Real Estate Owned]. There are various stages of foreclosed properties that require different approaches. Hence, you should be prepared legally and financially before putting up your money.

Written by: SP

Date Written: 07/14/08

Reviewer Assigned by: David

Reviewed by: GD

Quality Control: AG

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Quality Control Completed on: 23/07/2008