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Foreclosure Homes: How To Save Money Investing In Distressed Houses

Jun 6, 2008
Foreclosure homes can be an exceptionally profitable real estate investment strategy, as long as you understand the tricks of the trade. One of the most important aspects of investing in foreclosure homes is to realize a large percentage of them require considerable repairs. This can quickly eat up your profit margin; therefore, the main objective of investing in distressed houses is to purchase them significantly below market value.

Finding decent foreclosure homes for investment purposes requires a bit of detective work. A large majority of distressed houses can be located at foreclosure auctions. However, it's important to remember these houses are usually sold "as-is." As the new owner, you will be financially responsible for making necessary repairs.

Real estate investors, who purchase foreclosure homes with attached creditor or tax liens, will be responsible for having them removed. When purchasing distressed houses at auction, you must either have cash-in-hand or pre-qualified financing.

A lesser known pitfall of investing in auction foreclosure homes is occasionally the homeowner refuses to leave the property. When this occurs, you will be responsible for evicting the individuals who live there. Not only can this be stressful, it can also be expensive. Although many foreclosure homes are available under market value, buying through auction oftentimes leads to numerous headaches and tremendous stress.

A better way to save money when investing in distressed foreclosure homes is to purchase a pre-foreclosure home directly from the homeowner. Oftentimes, banks allow homeowners the option of a short sale. In this type of real estate transaction, banks accept less than is owed on the mortgage note.

In order to purchase pre-foreclosure homes you must obtain pre-qualified financing unless you have the ability to purchase the house with cash. Having prearranged financing in place will provide you with extra bargaining leverage and ensure you are qualified to purchase the distressed property.

The best way to save money investing in foreclosure homes is to locate a private real estate investor who purchases bank portfolios of real estate owned (REO) properties. Investors who specialize in this real estate niche purchase distressed properties in bulk. This allows them to buy houses at wholesale prices and pass their savings along to individual buyers.

If you have never purchased foreclosure homes, consider working with a foreclosure specialist or REO investor. These individuals can guide you through the process and help locate homes of interest to you. In many instances, they can also help you obtain reduced closing costs or a lower purchase price.

If you decide to invest in foreclosure homes take time to thoroughly understand the pros and cons of investing in distressed real estate. Research the area where foreclosures homes are located to determine property values and anticipated growth in the area.

Many individuals who are new to investing in foreclosure homes are frequently tempted by low-priced properties. Take time to evaluate the cost of repairs or renovations. In many instances, it can cost a fortune to return the house to livable condition. This is particularly true if you will need to hire contractors to perform the work.

If you are new to investing in foreclosure homes, it is usually best to seek out higher priced houses that require less work. This will allow you to quickly make repairs and locate tenants so you can begin making money on your investment.
About the Author
Simon Volkov is a private Real Estate Note Investor specializing in foreclosure homes, REO property, bank owned, and distressed houses. Learn more by visiting www.SimonVolkov.com.
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