If you play your cards right, investing in foreclosed properties can be a very profitable venture. Although it's not quite as simple as the late-night infomercials lead you to believe, the following tips can help you prepare for what lies ahead.
Before property is labeled "Foreclosed" it must first be placed for sale through a real estate auction. In order to purchase property through the foreclosure auction, individuals must place a minimum bid equal to the amount of the loan balance, along with any other costs associated with the process, such as accrued interest and attorney fees.
Typically, foreclosed real estate is sold "as is". Occasionally, the ex-homeowner may still reside in the home and individuals who purchase the property will have to deal with having them evicted. This is not a pleasant experience, so conduct research on any foreclosed property you are interested in to determine if the home is vacant or occupied.
If your bid is accepted, it will be your responsibility to pay-off any liens and/or back taxes attached to the property. You will also be responsible for taking care of necessary repairs or renovations.
While it is true foreclosed property can yield a good return on your investment, it is imperative you engage in due diligence. Learn as much about the property as possible before placing your bid at auction. Keep in mind much of the real estate placed on the auction block is not worth the amount owed on the note. Therefore, you want to look for properties that do not have tax or creditor liens attached or those in need of extensive repairs or renovations.
If the foreclosed property is not sold through auction, it is returned to the mortgage company, who returns it to the bank. At this point, foreclosed property becomes real estate owned (REO) property.
Once foreclosed real estate becomes bank owned, the mortgage note no longer exists. Generally, the bank will negotiate with lien holders to remove or reduce liens placed against the property. They will also take care of evicting individuals still residing in the home. Occasionally, they will invest in repairs and renovations.
REO properties are frequently listed on bank websites. Included will be the name of the contact person, along with their phone number or e-mail address. Prior to contacting the specialist, thoroughly investigate the property and conduct research on the market value of other homes in the area where the foreclosed home is located.
If possible, obtain estimates to determine the cost of repairs or renovations. If you plan to do the work yourself, determine the length of time it will take to complete the repairs along with the cost of materials.
Keep in mind banks are just like any other business. Their eyes are on the bottom line. If you want a good deal on an REO foreclosed property, make a respectable offer and leave room for negotiation. More often than not, the bank will respond to your original offer with a counter-offer. You may have to submit several counter-offers to obtain the price you want. Be persistent and remember, virtually everything in a real estate transaction is negotiable.
Not every foreclosed property will be a good deal. You will probably have to sort through quite a bit of rubbish in order to find your diamond. But, it can and does happen and there's no reason you can't grab your slice of the real estate pie.