Why Preforeclosure Investing Can be Your Best Bet

Of the three stages of foreclosure (preforeclosure, auction, or REO), preforeclosure may offer the most investment advantages, overall. Briefly, here are some pros and cons of investing at each stage.


Until it is sold at a foreclosure auction, a property in foreclosure is referred to as a “preforeclosure” property.

If you decide to invest in a preforeclosure home, remember that you’ll be dealing directly with the property owners, who might be difficult to contact. Courthouse research on preforeclosures can also be time-consuming.

But because you’re dealing directly with the owner of the preforeclosure home, it’s possible to create unique sales agreements. It’s also possible to score a 20% to 35% average savings off the property’s market value!

Foreclosure Auction

If the owner of the preforeclosure home cannot make the missed payments before a set date in the foreclosure process, the property is sold at a foreclosure auction.

Buying at a foreclosure auction can mean substantial discounts and great profits, offering a huge return on investment.

On the other hand, if you don’t do thorough research on the preforeclosure home before the foreclosure auction, you could lose. With foreclosure auctions, you rarely have the chance to conduct a property inspection, but you should do a title search. At foreclosure auctions, you will be required to have a large amount of cash up front for the deposit — usually much larger than when you buy a preforeclosure home. For example, you may need an up front cash deposit of 10% of the purchase price, and then be required to pay the balance in a matter of weeks or even days.

REO (Real Estate Owned)

When the lender takes back a preforeclosure home in order to cut its losses, the property is referred to as an REO (Real Estate Owned).

One advantage of buying an REO is that the title is usually clear, and the lender will probably have paid any back taxes on the property.

Profits from REO investing are generally not as great as with investing in preforeclosure homes or buying at foreclosure auctions. Though the risks are low, the savings are generally low, too.

If you do your homework, buying preforeclosure homes may result in the greatest overall rewards: lower risk than buying at a foreclosure auction, greater profits than investing in an REO, and the most flexibility as far as sales agreements, up-front cash outlay, and range of discount.

Happy investing!

About Lance

Lance Young's expertise in real estate investing is grounded in more than 19 years of independent real estate deals and mentoring of novice investors. His first success came with buying and selling preforeclosure houses. Later, he made tremendous profits in the probate house market. In 1996, Lance wrote down what he had learned in a one-of-a-kind, step-by-step program for beginners and seasoned investors that shows how to make money buying preforeclosure and probate houses. The programs are updated frequently to fit the changing real estate market. His investing techniques require just a $10 contract deposit and 10 hours a week finding the most profitable opportunities. Testimonials from his students show that with no experience, people have made first-time profits of $11,000, $31,000 and even $80,000 just by following his simple guidelines. Through his web site, PropertyForeclosure.com, Lance Young has shared his simple, yet powerful investing methods with thousands of students while continuing as an active investor himself. His motto is: To teach others to become successful, you must keep your hand in and practice what you preach.
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