Investing in Foreclosed Real Estate
Investing in foreclosed real estate can be quite profitable if you play your cards right. While it's not always as easy as the late-night infomercials suggest the following tips can help you understand the facts and get prepared for what lies ahead.
When real estate is foreclosed, it first goes up for sale at auction. In order to buy foreclosed property, individuals must place a minimum bid equal to the amount of the loan balance, along with any accrued interest, attorney fees and other costs associated with the foreclosure process.
Foreclosed real estate is typically sold "as is". In some instances, the ex-homeowner may still be residing in the property. In other cases, there may be liens against the property. As the new owner of the property it will be up to you to remove the individual and pay-off attached liens. The problem with purchasing foreclosed properties at auctions is that they are rarely a good deal. Most real estate placed on the auction block is not worth the amount owed on the note.
If the foreclosed property cannot be sold through auction, it goes back to the mortgage company, who in turn sends it back to the bank. At this point, the foreclosed property becomes an REO, or "real estate owned" property.
When the bank obtains ownership of the foreclosed real estate, the mortgage note ceases to exist. The bank will oftentimes negotiate with lien holders to remove or reduce liens placed against the property. They will evict persons residing in the foreclosed property, if necessary and may invest in repairs or renovations.
An REO property may or may not be a great bargain. Engage in due diligence and thoroughly investigate the property before making an offer. Conduct market research to ensure the price you pay is comparable to other homes in the area. Obtain estimates to determine the cost of repairs and 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 that banks want to obtain the best price possible to keep loss at a minimum. Generally, banks have a Loss Mitigation Department to ensure they obtain the highest price possible. In order to show they have attempted to obtain the best price, they will oftentimes reject the first 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.
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Published on June 01, 2008 at 10:29 PM | Comments: 1
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