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Profiting From Bank Foreclosures

Nov 26, 2007
Most of us think of properties that have gone into foreclosure as old, beat up places that no one would want to buy.

However, the truth is that in today's unstable economy, more and more gems are going into bank foreclosure simply because the owners of these properties have fallen on hard times. While mortgage lenders work with homeowners for a while to avoid the foreclosure process, eventually those who cannot pay their home loans lose their homes.

Many people realize that they can benefit from foreclosures by buying REO foreclosure properties. REO stands for real estate owned, and these properties are usually owned by the lender that held the mortgages.

When a homeowner cannot pay the mortgage back, the bank will repossess the property, evict the homeowner, and then look to quickly unload the home before losing any more money. Because the lenders goal is to get rid of the property without losing any money, rather than make a huge profit off of it, those who purchase these REO foreclosure properties can often turn them around and sell them for a decent profit.

Is there risk involved with this process? As with any investment opportunity, there is. However, because there is almost always a demand for homes, buying bank foreclosure properties is a fairly solid investment. The trick to making it work is knowing what type of home to buy. Not all foreclosures are going to be easily sold.

If you are stuck sitting on a property for several months, paying a mortgage payment each month, you may lose money on the deal. Certainly you will put yourself in a financial bind for those few months you are holding the property. To successfully invest in bank foreclosures, you must be able to recognize the types of properties that will resell well.

Also, the amount that of equity in the mortgage is important when you are investing in foreclosures. Remember, the banks goal is to avoid losing money on the deal, not making a huge amount of money. Therefore, the bank is going to offer the property for sale at a price that is close to the amount still owed on the mortgage.

For example, if you are interested in purchasing a property that you think will bring $250,000 on the market, but the previous homeowner still owes $230,000 on the mortgage, you are not going to get the home for much less than $250,000. You will not make much money investing in this piece of real estate. However, if you can find a home worth $250,000 that is for sale for $200,000, you will make a nice profit from this sale.

In order to make bank foreclosure investing work, you must know the real estate market in your area and be able to tell the approximate value of a home.

While there is tremendous potential for those interested in investing in REO foreclosure properties, there is also a tremendous amount of competition in this field. Many investors who have a decent amount of capital to use in their investments already have relationships with mortgage lenders.

This means that the lenders alert them to properties before they hit the open market. For this reason, the average real estate investor needs to find these properties before they go into bank foreclosure in order to make a profit. These homes are called pre-foreclosure homes.

The biggest reason that pre-foreclosure homes are the best investment for the new investor is because there is less competition surrounding these homes. Also, the sellers and the bank are generally quite motivated, because selling the home before it goes into bank foreclosure saves everyone both time and money.

Investors are willing to give you their money to work with to purchase these homes because they are usually available for a deep discount.
About the Author
Mike Kar is a real estate investor and mentor who has been helping people succeed in real estate investing and offers an infoproduct on real estate investing even if you have bad credit, no credit and no money.
Visit http://www.propertyforeclosureprofits.com
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