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If you're a new real estate investor looking to take advantage of the best bargains on the market, foreclosure real estate is the place to begin. Foreclosed homes can sell at immense discounts from market value, offering buyers like you the opportunity to turn a profit by fixing up and selling a home or leasing it to renters. Read on to learn why foreclosed real estate investing is all the rage right now.
What is Foreclosures Real Estate Investing?
A foreclosed home is a property that was repossessed by the bank or lender when the owner was unable to make the mortgage payments. If a homeowner defaults on a mortgage, banks and lenders are entitled to reclaim the home, then resell it to earn back some of the money they lost on the loan. Lenders are typically very eager to sell as quickly as possible, with homes often sold at auction for 30% to 50% less than their actual market value.
It's possible to earn a substantial profit margin by buying homes at bargain prices, fixing them up, and reselling them for much higher prices. Even a 10% increase in price can earn you $10,000 for what can amount to, in many cases, a relatively small amount of work. And when you purchase a foreclosed home at a rock-bottom price, you stand the chance of making 50% or more of the value of the home—a significant profit that’s well worth the time and effort.
How Profitable is Foreclosure Real Estate?
Even for inexperienced buyers, foreclosure real estate can be remarkably profitable. Consider this example: A house valued at $50,000 is foreclosed by the bank and sold at auction. Joe Smith buys the house for $28,000 at the auction and then resells it a year later after doing some basic handyman work and giving it a fresh paint job – repairs that cost him about $2,000. It's a competitive market, and the new buyers purchase the home from Joe for $60,000.
Joe has just turned a tidy profit. Not only did he receive more than $10,000 above the house's market value, he's been paid twice the amount of money he paid for the house, including repairs. That's a 100% return on investment (ROI) in one year! Even if he had sold the home for $50,000, its actual market value, he would have made $20,000 above his costs, or 67% ROI.
Foreclosed real estate has immense potential as an investment strategy, provided you know how to pick winning homes and do some basic repairs yourself. This is a hot business—and many analysts believe it’s going to remain hot for years to come.
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