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Investing in Foreclosures The Right Way!

Apr 27, 2008
Investing in foreclosures can be a big money maker when it comes to real estate investing niches. While investing in foreclosures results in large profits when you choose the right house, there are a lot of other factors to consider.

For example, there are laws that vary from state to state and county to county that govern foreclosures and if you violate those laws, accidentally or purposefully, serious consequences will follow.

Don't Believe The Hype -

A lot of the home study courses and infomercial gurus advise buying a foreclosure and then renting the property back to the homeowner with the hope that they'll repurchase it at a higher price in the near future. One of the highest risks an investor can take is letting the previous owner come back and reclaim their property because they misunderstood what you had agreed upon.

Besides, would you really want a tenant in your property that has a history as a credit criminal who doesn't pay their bills? Of course you wouldn't. However, beginner as well as many experienced foreclosure investors do that very same thing each day and pay a high price for doing so, oftentimes losing their investment completely when a judge declares that the transaction was indeed a usurious loan instead of an option to repurchase.

Something Else To Consider -

During various stages of foreclosure, you can make a deal happen between you and the homeowner in default, wait and purchase at the auction, buy after the auction or many other more sophisticated strategies. If you intend to buy a property at the public auction, know that in some states, the law sets a certain time frame for foreclosures to become finalized commonly referred to as a redemption period.

If you're considering investing in foreclosures, it is highly advisable for you to find out if and how this law potentially affects the ownership and possession of the property in your local area. You may think you own the property, when in fact you are a temporary caretaker for a set period of time.

Meanwhile, the homeowner could be working out a deal with another investor or attempting to sell the property in some other manner without you even being aware what is happening. This can obviously have a big impact on what you do to the property during the redemption period, even if the property is vacant at the time of the auction.

You could find yourself investing in foreclosures, putting money into them, only to lose all of the profit you thought you had coming to you.

Let's Back Up For A Minute -

A foreclosure occurs when the owner defaults on the mortgage. The bank has to start the process of taking the property that was pledged as security for the homeowner's loan. If the homeowner can't remedy the situation by paying the bank any money that is then owed, the property will likely make its way to public auction where it will be sold to the highest bidder at a sheriff's or trustee's sale.

Many real estate investors look at investing in foreclosures as a sure bet to increase their wealth and or portfolio but fail to realize the potential pitfalls that await them. Knowing what to do as well as what not to do will save you a ton of money and headaches as you progress into the arena of investing in foreclosures.

Exit Stage Left For Quick Profits -

When you are investing in a foreclosure, the first step is to determine what you are doing with the property. Do you plan on flipping it for a profit? Are you going to keep it as a rental? This will determine what area you should look in when searching what type of foreclosure properties you're interested in pursuing.

Choosing a property to flip takes some critical research. It's not typically quite as easy as all of the reality shows make it out to be. You may find a great deal only to discover no house has sold in that neighborhood for 8-12 months at the price that you need to make your minimum profit. Are you prepared to maintain the property for the length of time it takes to sell?

Can you afford the taxes and insurance on the property? Will the house be subject to vandalism if it remains vacant? If you don't study your market and fully understand what makes the difference between a good deal and a bad deal, you could be surprised to learn that your quick turn investment could possibly turn into a rental property. Would it make a good rental?

When investing in foreclosures, the bottom line is always the profit. A good rule of thumb to follow is only consider buying a foreclosure if you stand to make at least a 30% profit no matter what happens. That way, you'll never have to worry whether or not you should make a deal or not.

Some foreclosures can bring a much higher profit. Some determining factors are the area, past sales, the market value of the home, current condition of the property and the asking price. Once you learn the basics of foreclosure investing in your particular area as well as property values, repair costs, negotiation basics, etc, your success rate and profit potential will dramatically increase.

The Bottom Line Is This -

Once you learn your local market for investing in foreclosures, you will find yourself keeping an eye on which properties are headed to foreclosure and how to potentially make potentially high profit deals happen on a regular basis. You will also begin networking and becoming familiar with other investors in your area as you exchange possible leads that meet each other's buying criteria.

You never need to do everything yourself and should actively seek out someone more experienced than yourself to model if you are just beginning investing in foreclosures. Borrowing the experience from an professional investor can shave years off of the learning curve and help you to avoid potentially serious pitfalls.

Feed Your Head -

Always keep in mind that education and specialized knowledge are key as well as taking massive action on what you learn along the way will guarantee your success as a pro real estate investor!
About the Author
To discover how to create your own profitable push button house buying system that never fails and to claim your FREE video detailing how Dan O'Connor's renowned Your First Deal System will work for you - Go here now: http://www.YourFirstDeal.com
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