Foreclosure Investing
Foreclosure investing is becoming big business for real estate investors all over the US. Every month lenders are reporting ever-increasing numbers of properties being foreclosed on.There is a common misconception in foreclosure investing that other investors will be your biggest competition. In fact, your biggest competitor is bankruptcy.
When people in financial trouble are unable to find a way to deal with falling behind on their payments, especially on their property, bankruptcy becomes an obvious option.
Its at this point if you're able to get to them before the actual auction happens or filing for bankruptcy, you might be able to help them salvage their credit and get a fresh start.
Pre-Foreclosures & Short Sales
Reaching a buyer in foreclosure is usually referred to as Pre-foreclosure investing. You either make up the back payments and buy the house or contact the loss mitigation department of their lender and negotiate a short sale.
Short sales happen when the bank agrees to reduce the amount owed on a property that is in default. It can be a long tedious process that can be well worth it if you can show the bank why working with you to get the property dealt with now will save them time and money.
The banks benefit by unloading a non-performing asset and putting cash back into their pockets so they can make new loans.
The homeowner benefits because you just saved their credit.
The principal coordinating the short sale benefits by acquiring a property at discount and can then go about adding value and reselling or renting out to tenants.
Foreclosure Auctions & Sheriff Sales
If a property is not dealt with by the given date, it goes to the auction. Depending on the location of the property it can be an auction, sheriff sale, tax sale, etc.
Bidders will be required to show proof of certified funds and will need to have about 10% of the opening bid. You will need to show this up front and register for the property of interest.
Opening bids will start at the amount owed to the bank. If you have no competition you start with "and $1.00" and pay the bank the owed amount plus $1.00.
The bank gets what they want and you get your property - hopefully at a good discount.
REO and Bank-Owned Property
If no one bids on the property at the auction it goes back to the bank and becomes REO (Real Estate Owned) property.
Banks will have preferred Realtors that they work with to market the property. Banks are notorious for not budging on the price much within the first 60-90 days on the market.
If the property is in major distress and needs extensive renovations, then the bank will usually be realistic and set the price accordingly.
