Foreclosure investing has been around for many years but recently the trend is riding high on the wave of opportunity. Should a foreclosure become imminent, basically three scenarios can occur as follows:
1 Pre-foreclosure
2 Auction
3 Real Estate Owned (sometimes referred to as REO.
Explanations Of Each Phase.
Pre-foreclosure – Occasionally it is possible to come to a suitable arrangement with the property owner and the lender to purchase the property at a mutually agreed discount (anything from 25% to 40%). The beauty of this method is that you will have ample time to inspect the property as in a normal sale, arrange finance without being rushed and know that the Title Deed is correct. If you have done your homework with regards to resell prices for the particular property location, you can immediately commission the various works needed and resell the foreclosure property as soon as possible to turn a good profit.
Foreclosure Auctions – Buying foreclosures at auction can lead to the “double edged sword” syndrome. On the one hand this process can produce incredible profits but not without grave risks. You may find yourself bidding against many other professional investors and you must stick to your pre-determined price for the foreclosure property. It is all too easy to get carried away. Risks include
1 May not have been able to inspect the property 2 Title perhaps not researched thoroughly
One can pay for a title search before the foreclosure auction date but this can be costly, especially in the event of you being outbid. The successful bidder will be asked for a 10% deposit at auction close with the balance due within a very short period of time. It has been known to be requested on the same day.
REO foreclosures – When a lender possesses a defaulted property they will want to dispose of it as quickly as possible. They have no desire to wait for increasing market values or wait until “the time is right” after all they are not in the property business.
The Title will not be in dispute (to your advantage). Low risks are involved giving a lower overall profit.
Hopefully this article will have given you a basic idea of the Foreclosure business.