Getting Started in Foreclosure Investment
Real estate investing continues to make Americans wealthy, even during the current housing market downturn. In fact, some investors have waited years for the real estate price bubble to finally burst, just so that they could step in and acquire discounted properties at wholesale or below wholesale. But few could have imagined the depth of inventory now represented by foreclosure listings posted throughout the entire USA.
The Changing Face of the USA Foreclosure Market
Foreclosure investment success relies upon a strategic combination of timing, background research, and common sense. No longer the exclusive domain of professional investors, the foreclosure market is now populated with a wide range of buyers. While many buyers shop for foreclosure property in order to resell it for a quick profit, more and more Americans are buying just for themselves. The recent market correction opened the doors of home ownership to a broader demographic, and many foreclosures are changing hands to become primary residences or long-awaited vacation homes or income-producing assets.
And although foreclosures in America have historically been the result of unexpected personal tragedy; that too has changed significantly. Many of those facing foreclosure this year have enough money and excellent credit that they could afford to buy several properties at once, hoping to flip them in a matter of weeks to turn a generous profit in a rising market. But those who got caught holding the bag when the market shifted now find themselves unable to juggle mortgage payments, and their excess homes are headed for the auction block.
Where Do Foreclosures Originate?
Regardless of what kind of real estate one purchases with a mortgage, whether it is a condo, a mobile home, or a castle, foreclosure will normally happen if you default on your payments. After missing a couple of payments, the mortgage company or bank begins the legal foreclosure process, which culminates with a public foreclosure auction. The lender may sell it to the highest bidder or may choose to retain the property – if it doesn’t attract a high enough bid – and sell it through a conventional real estate broker (these kinds of foreclosures are known as REO, which stands for “real estate owned by the lender”).
Mortgage lenders lose money when they take back property, because they have to pay for everything from lawn maintenance to property taxes and insurance. So most lenders prefer a fast sale that allows them to at least recoup some of their losses. Then they can get out of the landlord business and back to what they do best, which is lending money to consumers.
For foreclosure investors, this creates a situation that is the real estate equivalent of a “going out of business” sale. The mortgage company is going out of the landlord business, and the homes in their foreclosure inventory will usually be sold at a deep discount. Lenders will sometimes even help investors get attractive financing or pay closing costs in order to ensure a quick and successful sale. You can even purchase foreclosures in other parts of the country, by working with professional real estate brokers and paying them a commission or finder’s fee.
A Word to the Wise
One of the biggest mistakes people make when buying foreclosures at auction is that they fail to understand the legal implications of ownership. Before bidding at a foreclosure auction sale, avail yourself of the experience and expertise of a legal advisor who specializes in real estate law. Sometimes, for example, the previous owner owed taxes or payments to building contractors, and if those debts were secured by the property, you can automatically inherit them when you become the new owner. Look before you leap, and you won’t have to worry about buying into someone else’s problems when you venture into the foreclosure arena.
Another pitfall to watch out for is get-rich-quick gurus. Avoid the expensive seminars that teach you how to make millions of dollars by paying pennies for properties. If it sounds too good to be true the advice is probably impractical. Investing successfully requires diligence, resourcefulness, and professionalism, not blind luck or slick rags-to-riches formulas.
The Smart Investors Invest in Education
Knowledge is power, and those with up-to-date information about foreclosure listings will find the best deals first. To stay ahead of the pack, subscribe to services that provide current foreclosure listing information, property statistics, and other data related to the ever-changing foreclosure market.
There are also many books and other educational resources to help you learn how to invest in foreclosures, and even those with no prior experience can succeed by taking help from a team of knowledgeable experts like real estate lawyers and appraisers.
The Simplest and Safest Way to Get Started
One of the best ways to start investing in foreclosures is by buying REO properties. The transactions are essentially the same as a typical real estate sale, unlike foreclosure auction sales, so new investors are not in unfamiliar territory. You can use a Realtor to represent you, hire inspectors to critique the property before you buy, and take the advice of a real estate attorney to guide you through the closing process. Another advantage of REO purchases is that you don’t have to show up with cash like you do at an auction. You can apply for a regular mortgage, and the bank that owns the foreclosure REO may give you a discounted rate.
In today’s real estate market there is plenty of room for everyone, because great properties continue to come online and there are thousands more waiting in the wings. This ensures happy hunting and prosperity for investors like yourself, and a wonderful opportunity for making money by acquiring excellent assets at bargain basement prices.