Investing In Foreclosure Homes
Foreclosure is defined as legal proceeding, where a mortgagee or lender, obtains a court order terminating the right of borrower to property. This happens when borrower fails to honor agreement with lender. Foreclosure is of two types, Judicial Foreclosure and Foreclosure by Power of Sale.
Though foreclosures are sad proceedings, they present an excellent opportunity to invest in real estate properties. This mode of investing can bring excellent profits. Investing in foreclosure requires lot of hard work, research and proper knowledge of laws. If you are planning to invest in foreclosure and make money, ready yourself for three ways to invest in such properties, Buying Foreclosure, Auctioning Foreclosure Phase and finally, ROE Phase.
In the first phase, you will need to meet homeowners, who have been served notice and lenders alike. You will get such properties at a huge discount from market value. Lenders are always happy to recover some part of their loans, while lenders are happy that the court proceedings are off their heads. To start, locate all the loans where are in default.
Once you find such borrowers, locate and inspect their properties. While inspecting, take a note of all costs to be incurred for repairing. Also, find the market value of comparable homes in that area. Now, you can negotiate with lender/borrower and buy the property. Close the sale after proper evaluation and clear of all the dues to the property. Such properties can be found at 20% to 35% discount.
In second process, you will have to compete with other investors and buyer in a formal auction process. While you are in an auction, be very clear to what you think is fair price and what you will want to pay. Do proper research, calculate your potential investment and profits, then you can bid smartly.
The last way to buy foreclosed property is through REO, where lender has taken the property back, but does not want to keep it, as its business is not real estate. Here, the lender has clear title as he /she is the most senior lender. Any other liens are usually wiped, before property is fully owned by them. Your savings will be in range of 5% to 15% in this method of purchase. It is a low risk and low reward method.
Once you have acquired a foreclosed home, carry out the repairs. Carefully invest only that much money, which will make it presentable. Use a real estate consultant to estimate repairs beforehand, so that you get affair idea of costs to be incurred.
Now, list out your property in real estate listing, locate good real estate agents in the area and start talking to potential buyers. Since, you have saved while procuring this property, you can make hefty profits by selling the same house, at market value. In real estate, profits are not made at sale but at purchase. Foreclosed properties make an excellent investment if done after due diligence.
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