Investing in preforeclosure homes is one of the best and often one of the most profitable ways to get involved in real estate investing. Preforeclosure homes are properties in the default phase of foreclosure when the owner has missed a few payments and the bank has begun the paperwork for foreclosure. A property is in preforeclosure until the minute the foreclosure auction begins.
Why is preforeclosure investing a great deal?
Motivated sellers. Property owners facing foreclosure are highly likely to want to make a deal so that the burden of their property and the threat of financial ruin will disappear. By buying their preforeclosure home, they see you as giving them a way to preserve their credit.
Equity spreads. With the loan on a preforeclosure home in default, you can request that the lender discount what is owed on the payoff amount. Banks are often willing to do this just to be rid of the preforeclosure home and avoid having to liquidate bad loans. This can create a large equity spread for you when the preforeclosure home has little or no equity.
A well-defined niche market. When you concentrate only on preforeclosure investing, rather than on spreading your investment focus thinly over numerous types of real estate investing, you can focus your marketing campaigns on a very narrow target. This allows you to hone your processes and become an expert on preforeclosure investing, rather than spreading your efforts too thinly and not reaping much return in any area.
Less competition. When you buy a preforeclosure home, you beat the crowds eager to get a deal at the foreclosure auction. And because you’re working directly with the owner when you buy a preforeclosure, your chances of getting a great investment deal are high. And don’t forget, while you’re winning, you’re helping the homeowner win, too, by avoiding the foreclosure auction.