First Time Home Buyers: Consider Buying Pre-foreclosure Real Estate
Posted: Wednesday, September 05, 2007
by Gerry Marsh
Buying foreclosure real estate can be difficult, frustrating and at best a total waste of time. That is, it can be all of those things to an unwary new investor straight out of a "Make Big Money In Foreclosure Real Estate" seminar. For the knowledgeable investor however, foreclosure real estate really can be a satisfying source of good income - and a golden opportunity for first time homebuyers.
Most home buyers shopping for a personal residence do not even consider foreclosure property because of the imagined problems. But they should. It is puzzling in a way. There are many couples starting out without much money or credit who buy a "fixer" and spend considerable time and money fixing it up while they are living in it. They then turn around and sell it to move up to a more expensive fixer and begin the process all over again.If this describes you, you should really consider a foreclosure property. But you need to equip yourself with a little knowledge first so you don't suffer the pain and disappointment common to so many trying this route. Let's start with the basics.
Foreclosure or Pre-foreclosure
The term "foreclosure" brings to the minds of most people a scene in which a home is auctioned off on the court house steps and you bid against other interested investors. You do not want to do this. It is hard to get the edge on the experienced bidders who have done this many times. What you want is a "pre-foreclosure" property. A pre-foreclosure property is one on which the bank has begun foreclosure because the owner has missed several mortgage payments but it has not yet reached the auction sale stage. A key to successful pre-foreclosure investing is to build trust with the homeowner so that you can gather the information you need and move quickly to put together a deal that everyone will agree to.
Pre-foreclosure Properties Can Be Profitable
Done correctly, buying a pre-foreclosure property can be a profitable experience even for a first time home buyer. You have ample time to research them because you can buy them up until the day of the foreclosure auction. When you buy a pre-foreclosure, you help save the homeowner's credit by avoiding a foreclosure auction. You should keep this in mind. You are not taking advantage of the homeowner in distress. You are helping him/her avoid a current and many future credit related problems.
Pre-foreclosure investing makes everyone involved a winner.Lenders typically don't bother explaining borrowers' rights and options. They just want to collect their money. You have the opportunity to help homeowners avoid foreclosure, salvage their credit rating, and get on with their lives. And you can gain a home of your own - or resell it and make money by doing it. You can end up saving tens of thousands of dollars on the purchase of your home by investing in a pre-foreclosure property. It can be a great opportunity to buy low and sell high, quickly maximizing your equity. Repairs Will Be Needed
It is not all gravy. Most of the better opportunities you find will need a lot of tender loving care to get them back in shape. They may need carpeting, up-dated or repaired appliances, electrical or plumbing. Roofs may need to be replaced. All of them will probably need painting and quite a bit of landscaping work. If a person is short of money and facing foreclosure, these things simply do not get any attention.
Summary
Buying a pre-foreclosure property can be of a benefit to both yourself and to the current homeowner. It is not always easy but it can be very rewarding. Unless you are a well qualified handyman yourself, you need to get an estimate from qualified professionals on what it would take to bring the home up to standard. Don't rush or get discouraged. Buying a pre-foreclosure home gives you plenty of time to evaluate everything.
About the Author
Gerry Marsh is a successful webmaster and on-line publisher in the fields of real estate and financial services. Download his free report Foreclosure Investing - How To Avoid 8 Critical Mistakes and find more information on buying a home with bad credit on his blog.
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Top-level comments on this article: (2 total)this article was very helpful. still learning a lot, though, on how to buy pre-foreclosesure. for instance, what is a reasonable amount to offer an owner facing foreclosure? the amount they owe the bank? 20-30 percent off of market value? so many pre-foreclosures i've run into seem to still be very very expensive.You're right. A lot of foreclosures are still expensive - especially if you try to buy them from a broker or bank. You really need to deal directly with the homeowner in the pre-foreclosure stage. And in the beginning don't offer anything. Rather, ask what they would like to see happen. It is surprising, but sometimes they just want out, period, and will offer what seems like a ridiculously low selling/take-over price. Go into the deal with the attitude that you want to help them solve their problem and often you will solve you too.
This article is very helpful. But my question is how do you go about finding homeowners in the preforeclosure phase? Which is the best way to approach them, the knock on the door way or sending a letter to the owner?Homeowners in pre-foreclosure can be found in the legal notices of your local newspaper or business journal. They are shown as in default. Records in the county recorders office can also be checked for notice of defaults. These records are open to the public and some counties even permit online access.
I have found the best way to approach them is in person with a knock on the door, Scary, but more fruitful. Many people do have success writing a brief letter first.
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