When Opportunity Knocks: Investing in foreclosure properties
| I thought I’d write a little post about the overwhelming trend of real estate investors to pursue the many opportunities offered by homes in the foreclosure realm. Subprime lending, along with other factors, is supplying the market with an unprecedented amount of loans in default and beyond. The whole process begins when a borrower falls behind on their payments and the bank assumes possession of the house. That bank then puts the home up for sale at a public auction, taking place at the county courthouse. But if the property isn’t purchased by an outside bidder, the bank turns around and puts the house back on the market through a real estate broker—usually at a competitive selling price. With the varying steps in the process, it’s easy to see how each one lends itself to unique investing strategy. For instance, certain investors specialize in pre-foreclosure investing. This is where an incredibly motivated seller is in need of help and in need of an exit strategy out of their mortgage; indeed, many times the seller is only one step away from losing their home. The pre-foreclosure investor comes alongside the troubled homeowner and solves their problems, avoiding a foreclosure, while securing a discounted purchase price. However, there are other investors who are courthouse auctioning geniuses. They know when to bid and when to pass and have enough financial clout to make it worth their time. But beginners beware. Many of the properties offered at public auctions don’t have much equity, and the homes that do usually attract a number of bidders which serve to inflate the price. It is, however, a viable option and an investor could potentially leave with an unbelievable deal. And then there are the investors who step in even further along the process, once the bank has put the house—clear of title troubles—back on the market. Not surprisingly, the bank’s motivation level is increasing exponentially at this point. Prices on such homes will go down, especially after sitting on the market for more than three months. This is when the smart investor snatches up the home at a mere fraction of its true market value. So, when you hear people talking all about how real estate investing is a thing of the past—not a choice the informed make—well, you know better. |