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Foreclosure Investing: What You Need to Know Before Jumping In

Jun 20, 2008
Foreclosure investing involves a lot more than picking up a house for a below market price at an auction and then turning around to sell it for an amazing profit. Foreclosure is a long process, as is real estate, and both are bound by laws and tax regulations that you need to follow. Before you invest in an expensive how-to program or ebook, keep reading to learn the basics of what you need to know for investing in foreclosure properties.

Why Foreclosure Investing is a Good Buy

Because most banks are only looking to regain the value of the home's unpaid mortgage, foreclosure investors can often obtain a property for about 70 to 90 percent of its true market value.

And, thanks to today's still low interest rates, the cost of carrying that property is low. This means if you can hang on to a property for five to fifteen years you can actually double your money, depending on the market. And if you have tenants residing in the property, you can earn even more.

It Takes Capital

Typically, real estate isn't considered a quickie investment, and your capital can be tied up for a long time. A down payment on a home can't always be taken out and withdrawn in the case of a financial emergency or the need for quick cash.

That capital could also be used for other investments. For example, let's say you invest $20,000 into a home that winds up not appreciating at the 8 percent annual rate you hoped it would. Instead, it depreciates and then eventually appreciates at a low 4 percent rate. That $20,000 could have made more by investing it wisely in a diversified investment portfolio.

Ask For a Warranty Deed

Do your homework about potential tax liens or outstanding building code violations on the property. A warranty deed will ensure you're buying a property with a clear title.

Understand Redemption Period Laws

Many states have what's called a "redemption period" that allows the previous owner to clear his or her debt and then take back the home for a period of time that continues even after the foreclosure is completed.

Buy a Vacant Home

Typically, the bank or lender will evict the previous tenants before the house is sold at foreclosure auction. If, however, you buy a home where the previous owners are still living in the property, you will need to take on the long, arduous, expensive and emotionally-taxing eviction process. It's hard and unpleasant, so unless the opportunity is especially appealing, look for a home that's already vacant.

Hire Professionals, Not Late Night TV Gurus

Don't spend your money on useless "how to" audio books and videos that are little more than sales tools for another product that claims to teach you how to do foreclosure investing.

Instead, commit your resources to a good real estate agent, a quality real estate attorney and a recommended and thorough home inspector. Most foreclosure investment homes are sold in what's called "as is" condition, meaning the seller makes no guarantees about the condition of the property. This is why you need a fantastic home inspector to let you know if you're walking into any major potential problems or expenses.
About the Author
For information on exciting real estate locations, visit http://www.realestatelocale.com, a popular site providing great insights concerning home purchase ideas, such as Whitefish Bay real estate , Lake Hartwell real estate , Spotsylvania real estate , and many more!
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