Foreclosure Investing – 3 Main Ways To Make Money
No question, foreclosures are at a record number right now. After a period of aggressive lending, more and more people are finding it impossible to meet their mortgage repayments. The banks and other lenders, in turn, are foreclosing on more and more properties.
Given the crash in property prices across the nation, this means huge opportunities for the savvy real estate investor. So in this article I'll outline the main ways you can make money from foreclosures.
Okay, so what is a foreclosure? Basically, a foreclosure arises where someone who has borrowed money from a bank or other lender to buy a property – and has given the lender the property as security for the loan – fails to meet their mortgage repayment obligations, and the lender decides to repossess and sell the property as a result.
There are three main foreclosure investment opportunities, depending on the status of the foreclosed home in the foreclosure process.
The first way to profit is if the property is in pre-foreclosure. At this point, the bank (or other lender) has sent the defaulting mortgagor a certified letter requiring them to make good all their outstanding repayments by a particular date.
If you were to then step in and offer to buy the home from the mortgagor, that would stop the foreclosure proceedings. Many homeowners would rather sell their home at a steep discount to an investor like you – in the hope they could make a small profit or at least get rid of their debt – than go through the stress and potentially greater financial loss associated with the foreclosure process. The bank, too, is likely to prefer this opportunity.
The second way to make money from foreclosures is when the property is being sold through public auction (or trustee sale). During such an auction or trust sale, the property must be sold to the highest bidder.
Properties being sold at a foreclosure auction are often bought sight unseen, so there are some risks involved. However, if you take this into account when bidding on a particular property – as well as the fact that the bank is eager to sell – an auction may give you a terrific chance to pick up a home at a significant discount to its true market value.
Finally, if the property is not sold at public auction, the bank must buy the property itself. If that occurs, the bank will usually be more motivated to get the property off its books. This gives you bargaining power!
So there you have the three main investment opportunities in the foreclosure market. With the right strategy in place, and an eye for a good deal, there's no doubt that you can make huge money in this lucrative area of property investing.