Investing in foreclosure homes
Real estate investing has long been a popular investment medium for numerous individuals. While it does have its risks -- like most investments -- it has several notable benefits. When handled correctly, real estate investing has proven to be a great way to consistently build personal wealth. Property generally appreciates in value and that is one of the primary reasons it has remained attractive to both the risk-takers and the more conservative investors.
There are several ways in which to invest and profit from real estate. One way is through investing in foreclosure properties. With the right foreclosure property and the appropriate set of circumstances, an investor could find themselves walking away with a nice profit. How much? That will depend largely on the type of investment opportunity desired, the level of risk one can tolerate, the current market, and of course, the foreclosure home itself. There definitely are a lot of variables and potential risks, but the rewards make investing in foreclosures a welcomed opportunity for many investors.
If interested in foreclosure homes as an avenue for real estate investing, begin by asking yourself what you expect your investment to do for you. Are you looking to generate a positive monthly stream of income, build long-term equity, or take a quick profit and reinvest? Your goal will determine if you are going to purchase a particular foreclosure property then fix it up and rent it out, live in it for the long term or sell it as quickly as possible.
After discerning your investment goals, you can choose which foreclosure phase best suites your investment strategy. There are three phases in which one can purchase a foreclosure: when it is in pre-foreclosure, at a public auction or from a lender after a foreclosure sale (REOs). Each has its own set of advantages and disadvantages that the investor needs to understand in order to determine which is best for their individual circumstances.
For instance, buying a pre-foreclosure often allows an investor to buy a property at a discount of 20 to 35 percent off the market value. However, besides dealing with a lot of competition, it can prove to be frustrating for many when they encounter reluctant sellers and/or have to negotiate with various lien holders. Public auctions again allow for potential discounts of 35 to 45 percent off market value, but an investor takes a huge gamble by not being able to inspect the property prior to bidding. Additionally, having to secure the full payment in a relatively short period of time can be difficult and stressful if you aren’t operating with large cash reserves.
These potential drawbacks may be why many investors prefer to purchase REOs and to deal with lenders and banks. An investor feels more secure in knowing that they will be receiving a clear title at the close of the transaction, and that they will be given an opportunity to inspect the property so that they can correctly calculate just how much money they will need to spend in order to turn a profit. True, the discounts may be lower, usually 5 to 25 percent, but that is still a solid return on an investment and an acceptable trade off for those preferring to tolerate a lower level of risk.
If you are new to investing in foreclosures, then start out by consulting with professionals who understand the process and can assist you. Realtors, brokers, lenders, accountants and home inspectors can provide valuable information not just about which foreclosure homes may be worth pursuing, but also about your local real estate market, possible tax issues and applicable state laws regulating the foreclosure process.
Armed with your strategy and the necessary knowledge, you can begin checking out the foreclosure listings available either through the newspapers, courthouse or an online foreclosure listing service such as
ForeclosedHomes.com to locate properties that fit your investment needs.
Real estate investing, particularly in foreclosures, is not for everyone. It requires not just an investment of money, but of your time and energy. Furthermore, contrary to what the late-night television and internet advertisements would lead you to believe, every foreclosure is not an investment opportunity waiting to happen. Just because a home is in foreclosure it does not make it a good deal. With that said, those investment gems are definitely out there. As a savvy investor, you will just need to dig through the various foreclosure listings to uncover them and determine if they make good financial sense.