Real Estate 101: Investing in Foreclosures

By
Real Estate Agent with One Source Realty

When it comes to real estate investing, making money off of foreclosed homes is a highly specialized area that can become aggressive as well.  This is because investing in foreclosed real estate is a specific market and those that are involved in this form of investment tend to be highly educated when it comes to making money in this manner.  Therefore, before you get involved in real estate investment, it is important that you become as educated as possible about buying and selling this type of real estate for the most profit.

Understanding Foreclosure

When many people think about foreclosed properties, they envision homes that are falling apart or that are infested with termites or covered in mold.  The reality is that foreclosed homes can be mansions or pieces of commercial property that are worth millions of dollars as well.  Remember, properties are not necessarily foreclosed upon because they are condemned or because they were not properly cared for.  Rather, the previous owner simply failed to make payments on the property.  When this happens, the lender takes the property back and sells it in an attempt to regain the money that has been invested into that particular piece of real estate.

Choosing Your Niche

When you decide to become involved in real estate investment by specializing in foreclosed properties, you will need to first determine your niche.  In other words, you should start off by targeting one type of property.  Perhaps you will focus on “fixer uppers” that you will repair and then sell.  Or, maybe you will specialize on commercial properties. 

Whatever you decide to specialize in, the chances are that you will have plenty of properties to select from.  In fact, the number of foreclosure properties available each year in the United States is topping half a million and those numbers continue to grow.

Picking the Right Stage of Foreclosure

As you explore the possibility of purchasing foreclosed real estate, you will need to learn more about the three major stages of foreclosure.  These stages are pre-foreclosure, auction/trustee sale, and real estate owned.  There are pros and cons to completing your purchase during each of these stages, so you might find that you prefer to close the deal at a particular stage.  This is entirely up to your personal preference.

During the pre-foreclosure stage, the homeowner has received a certified letter stating that the home will be foreclosed upon if payments are not made current by a certain date.  You can approach a real estate owner at this time and offer to purchase the property before the foreclosure occurs.  There is little risk involved with purchasing property during this stage and you can also enjoy the satisfaction of helping someone get out of a bind, though you need to make sure there are no judgments or liens on the property before you finalize the deal.

During the auction stage, the property has been put up for auction or put up for what is referred to as a trustee sale.  This step occurs when the owner fails to bring the payments up to date in accordance with what was stated in the letter that was received in the previous stage.  During this stage, you can purchase the property by paying the lender so it does not have to take the property back.  As a result, you can often receive a discounted price.  To buy the real estate at this time, however you will need to have the cash needed for the purchase.  You also have to purchase the property “as is,” which can be a risk if there are problems with the property.

If no one purchases the property at auction, the lender had to buy it back.  It is at this point that it is considered Real Estate Owned.  At this stage, the lender may attempt to make a profit from the property.  Nonetheless, you can typically get a good discount at this stage.  In addition, waiting until this stage provides you with more time to do research on the property ahead of time.

Real estate investment can be an excellent way to make extra money and to plan for your future.  At the same time, you need to take the time to learn about this type of business and to understand the pros and cons of investing at the various stages in order to make sure you minimize your risks and maximize your profits.

 

Eric Bramlett is the broker & co-owner of One Source Realty in Austin, Texas.  Eric currently manages his Lake Travis Real Estate website, his Austin real estate company's website, & his  Steiner Ranch real estate website. 

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