If your resources are limited, if your credit is less than stellar, or if you just enjoy making a profit, one of the best ways to get started investing in real estate is to buy foreclosures. There are three stages in the foreclosure process, providing you with three opportunities to buy foreclosures: default, or pre foreclosure; auction/sale; and REO (Real Estate Owned). Each stage carries its risks and rewards.
Buy Foreclosures at the Pre Foreclosure Stage At the pre foreclosure stage, the homeowner has defaulted on his mortgage loan. The bank has begun the foreclosure process, which will end with the foreclosure auction. In pre foreclosure, the owner still has a chance to preserve his credit by selling the house and thus getting rid of his mortgage debt. He is often anxious to “unload” it, to end his financial troubles. If you want to create a win-win situation for you (you get a property at a deep discount) and for the seller (he sells his property), buy foreclosures while they’re in the pre foreclosure stage.
Buy Foreclosures at Auction A public auction can be more nerve-wracking than working directly with the seller to buy a pre foreclosure home. First, you’ll be competing with the lender, as well as with many others who also want to buy foreclosures. The process moves quickly, and the property is auctioned off to the highest bidder. Though you may need to have a large amount of cash up front, and sometimes the remainder within weeks or months, you can often get great property at 35-40% off market values.
Buy Foreclosures in the REO (Real Estate Owned) Phase When the lender takes back a foreclosure home to cut its losses, the property is called “REO.” An REO property can often be very easy to buy, because lenders generally don’t want to be in the business of owning property, and want to move the property quickly. If you buy foreclosures in the REO phase, you may not get discounts as deep as with auction sales or pre foreclosures, but, on the other hand, your risks are generally lower.
Each stage of the foreclosure process offers a distinct way to buy foreclosures. If you do your homework, you can buy foreclosures at minimal risk and maximum profit.