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Bank Foreclosures: Evaluating the Risk Before You Invest

Bank foreclosures offer investors the potential to make a hefty profit, but they also carry a tremendous risk. Before investing in real estate owned properties, it's imperative to conduct research to fully understand the process involved and weigh the pros and cons.

When foreclosure homes are not sold at auction, they are returned to the bank. Also known as real estate owned (REO), bank foreclosure properties are sold directly through the lender. Most banks want to sell REO properties as quickly as possible. However, this does not mean they are eager to sell them for less than is owed on the mortgage note.

Chances are you aren't going to obtain the deal of the century by investing in bank foreclosures offered by lenders. If you're lucky, you might be able to purchase REO houses for five percent under current market value. Currently, the majority of banks won't accept bids on foreclosure homes for less than ninety-five percent of the amount due on the note.

Experts suggest lending institutions will be forced to accept lower bids on bank owned properties in the not-to-distant future. As foreclosure rates continue to soar across the nation, banks are holding the deed to more homes than they can manage. In order to liquidate their inventory, eventually they will have to accept lower offers.

Although bank foreclosures might not save you a tremendous amount of money, they do offer several advantages. Typically, REO homes have a clean title and property taxes are current. Oftentimes, repairs have already been made to the property by the lender. In some instances, REO homes require substantial repairs and the bank will offer them at a lower cost.

When investing in bank foreclosures, it's imperative to thoroughly inspect the property you wish to buy. If the home requires numerous repairs, you can use this to negotiate the price. Depending on your level of expertise, homes which require major renovations could potentially reap a higher profit. If you are a handyman type of person and can make repairs on your own, savings could be significant and increase your profit-margin.

Oftentimes when you make an offer on bank foreclosures, the lender will make a counter offer. Arm yourself with a list of repairs and estimates to return the property to livable condition. If possible include photographs showing proof of necessary repairs. Depending the condition and location of the property, you may have to counter-offer several times before the bank will accept a final offer.

Do not fall into the trap of becoming so captivated by a property that you end up paying full price or above. Remember, there are plenty of bank foreclosures available. If the bank isn't willing to give you a good deal, be prepared to move on.

A lesser known, but better way to invest in bank foreclosures is to locate private real estate investors who purchase bank portfolios. When investors purchase in bulk, they are able to obtain houses at wholesale prices. Oftentimes these savings amount to thirty percent or more. Investors who engage in wholesale purchases are able to pass these savings along to interested parties and provide them with instant equity in the home.

The key to purchasing bank foreclosures from private investors is to buy them with cash. This allows for fast closing and enables you to make a profit on the house quickly. While others are busy making counter-offers with banks, you can purchase a bank foreclosure from a private investor, make repairs and renovations, sell it under market value and still turn a profit.

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Published on April 17, 2008 at 07:12 AM

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