Pros of Buying Foreclosures
September 17, 2008
The buying of foreclosures is a potentially profitable method of Real Estate investment. The pros of buying foreclosures in many cases outweigh the cons.
A foreclosure is the term that is used when a homeowner falls behind on his mortgage loan payments and the lender who holds the mortgage takes legal action to recover the property. Although there are other circumstances that might lead to a foreclosure, falling behind at least two full monthly payments is the most common reason. There are several laws that have been enacted in various states that protect the rights of the homeowner in the case of foreclosures.
However, if the homeowner is not able to make up the amount owed and foreclosure is initiated, he stands to lose any equity he might have in the home. The lender will eventually sell the property to another buyer in a public auction and the homeowner will be evicted. This is, perhaps, the biggest advantage of buying a foreclosure property. The home owner is facing a serious loss if he has any equity in the home at all. He is going to be very open to any type of deal that allows him to cut his losses as much as possible.
It stands to reason that the home owner is not going to be in a very sound financial position. If he were, he would not have fallen behind in his payments in the first place. This means that he is quite willing to negotiate some kind of deal that allows him to come out of the situation without losing everything. The potential buyer will most likely be getting the property at considerably under the market value. This creates an ideal situation for flipping the property.
It is usually better to deal with the homeowner directly whenever possible, but foreclosures can almost be bid on at the public auction. The bids are usually sealed bids and the winning bidder will be expected to come up with the bid price quickly. The homeowner might have to be actually evicted, but despite this, it is often worth making bids as the possibility of getting the property at a price way below market value is good. Another method of purchasing foreclosures is called REO. This stands for Real Estate Owned properties. These are properties that have not been sold at the auctions and are now owned by the lender.
Lenders will be willing to unload the properties at a very reasonable price. They are mostly interested in recovering the loan balance or as much of it as possible. They are in the business of lending money, not managing Real Estate and will want to unload the property as quickly as possible. The pros of buying foreclosures can be summed up by the fact that the properties can be purchased by an investor at a price below market value. This is the perfect situation for a buy low-sell high transaction.
View FSBO homes at FSBOAmerica.org.
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