When a borrower defaults payment of a loan, the lender may be entitled to his property. After 3-6 missed payments, the lender issues a notice through the trustee. This notice implies the beginning of a phase called ‘pre-foreclosure’. The borrower / property owner gets time to clear his dues or make a short sale during this period. He can also attempt striking a deal with the lender by working out a feasible solution. However, if none of these options fall in place, the lender lays claim over the property. It is then called a ‘foreclosed’ property.
Why Opt for a Foreclosed Property?
Real estate mega mind, Jeff Adams, states that foreclosed properties are often good deals since they are sold at lower prices. Investors often look for such homes to save money. These properties are available at a lower rate as compared to the market value. Moreover, the potential buyer has a high bargaining power in such situations. Hence, investors are keen on finding good foreclosed properties for investment.
Jeff Adams recommends some pointers (listed below) to remember when investing in foreclosed properties.
- Real estate investment is always cash flow dependent. Be sure that you have ready money in hand if you plan to invest in foreclosed properties. Such homes are sold ‘as is’. Hence, you may have to bear the cost of structural or maintenance repairs. Such costs should not go overboard.
- ‘Hidden foreclosures’ or homes that have never been invested in are a good option. Such properties are usually constructed by builders but could never find interested buyers till the loan period was over. Lenders lay claim over such properties and can offer a good deal.
- Websites, local newspapers, real estate magazines and search engines are all good sources of listings for foreclosed properties. Some governmental agencies also advertise such homes. Refer to such sources to find good deals.
An increase in the number of foreclosed homes is good news for real estate markets. Risk-taking home buyers and investors looking for a good bargain can benefit substantially from such properties.
Take a look at the following 4 tips to buy the right foreclosed home.
1. Know the Homeowner: A property gets foreclosed when its owner is in debt. In all likelihood, the owner has kept the house in a bad state. Moreover, evicting such owners from the house could be task for the buyer. Make sure you have complete knowledge about the history of the home and its owner.
2. Direct Approach: Most investors get a broker when they want to invest in a foreclosed property. Instead, approach the lender directly. If the property has been listed for more than a month, it is very likely that the lender would be more than pleased to consider your offer.
3. Inspection: Make sure you inspect the property well before investing. Electrical, structural issues must have been addressed. Keep a note of unpaid bills and consider these factors before you set your final investment amount. If the resultant amount is feasible, consider going ahead.
4. Research: Location, past records of the property and owner, legal documentation and ownership information must all be clearly revealed before you actually carry out the transaction. A good property will have most of these things sorted or manageable.
Consult, seek advice and learn – remember the 3 points before you dive in. Real estate investments are capital intensive. Do not take hasty decisions on the basis of hearsay. Make sure your research is supported by facts and verified by experts.
