3 Stages of Buying Foreclosures
The strategy of buying pre-foreclosures is to create a situation where everyone wins. This type of strategy involves just you, the homeowner, and in some cases the lender. Because the homeowner has been delinquent on his or her mortgage payments, they are now in a position to entertain offers made by investors. Keep in mind, you may not be the only investor looking at this property. However, when buying pre-foreclosures, you can expect very little competition.
When buying pre-foreclosures like this and in turn make a profit, you must do some research on these types of properties. The following are some basic guidelines:
- locate loans in default,
- evaluate each property by comparing and contrasting location, price, and property condition
- narrow your selections to a few
- inspect the properties
- determine the property owner’s needs, his motivation and flexibility
- determine the market value of the property, fix-up costs, potential sales price and profits
- arrange default work out by negotiating with the owner and the lender
- close on the property, fix it up, and flip it quickly
Buying Foreclosures At The Auction
Buying foreclosures at the auction is a great way to purchase a property under market value. Most properties are auctioned on the courthouse steps. The property is auctioned off to the public and the highest bidder walks away with the property. This can be very rewarding to those who are in a position to buy the property within a short amount of time and can be devastating to those who bid without proper financing in place. Most auctions require a small deposit down of the purchase price on the spot and the remaining balance usually within 1-30 days. So make sure You have you deposit ready and your financing is in order before you bid. If you are unable to get financing within the allotted time, you will most likely lose your down payment, and they will auction the property off again. Buying foreclosures at the auction is also the riskiest place to pick up a foreclosure. You are buying the property in "As Is" condition so it’s very important to do your homework before you just go to an auction and bid on a property.
When buying foreclosures at the auction, we recommend you:
- first visit a local auction to get a feel for the bidding procedure, find out how much is required as a down payment and when the rest is due
- get proper financing in order
- research properties and do your homework prior to the auction date
- calculate potential profits
- determine the most you will bid for the property
- follow the property to the auction and participate
Buying Foreclosures that are Real Estate Owned (REO)
Buying foreclosures that are REO primarily involves the lender. REO just means the lender reclaims the property and establishes control over it to minimize its losses. Buying foreclosures that are REO is by far the easiest way to pick up a distressed property. Lender’s are always listing properties that come back from the auction, because they don’t like excess inventory. They are in the lending business, therefore it is quite easy to find these types of properties. Most of the time they will hire a broker or real estate agent to handle the REO’s just because there are so many of them. Lender’s in this situation are very motivated, especially if they have a large number of them. These properties are considered to be a huge expense which need to be eliminated. This gives the investor numerous ways to creatively negotiate with the lender on a purchase price. One disadvantage when buying foreclosures that are REO, is that you will pay close to market value for these properties because the lenders will have paid off any outstanding liens, taxes, and other expenses. This is good for you though, because most of the time you will find these types of foreclosures with clear titles.