Do you want to invest in foreclosed properties? Are you a first time investor trying to gather information about this lucrative investment option? In order to invest in foreclosures, you will need to acquire good knowledge of the real estate landscape and the processes involved in the purchase of properties.
So, let’s begin by trying to understand what foreclosure investing is.
Foreclosures Explained
Foreclosure investing refers to the process of investing money in the resale of mortgaged property that has been foreclosed. Foreclosure is actually a legal process that explains how a lender (usually banks and financial institutions) takes possession of properties from owners who have not repaid their loans. The mortgaged property is then auctioned or sold off to bidders, and the proceedings are often monitored by representatives from the courts.
Thus, there are several legal norms that are followed before announcing a foreclosure. These are:
· A Lis Pendens (Latin for ‘pending legal action’), is sent to the loan defaulter after he / she has failed to respond to several summons from the creditor or bank.
· At this point, attempts made by the defaulter to appease or repay loans are not encouraged any further.
· A public record is made at the office of the land of registrar where deeds and mortgages are registered.
· The due process of foreclosure begins when the defaulter is given a specified time within which he / she is asked to repay, sell the property or strike workable deals with creditors. When none of these actions are taken, a foreclosure sale is announced.
· If no one bids for the property its ownership is transferred to the bank or creditor.
More on Foreclosure Investment
Normally, anyone can bid for these properties, including investment professionals on behalf of high net worth individuals or financial institutions themselves. Usually, experienced foreclosure investment professionals start making bids for these properties as soon as they learn about default payments during their research.
The foreclosure investment is usually made when interest rates are high. This is because investors can then resell that same immovable asset at a much higher rate when the condition of the economy improves. Thus, it is evident that there is a direct correlation between foreclosures and poor economic conditions or times of recession, when people cannot sustain the repayment of their loans.
Tips for First-Time Investors
Since the returns on foreclosures are very high, as a first-time investor, it is good to know a few important strategies associated with foreclosure investing:
· Put time and energy into research on the local property market, and the kind of prices investors pay for foreclosed properties.
· Go through websites and published material on local deals for properties.
· Thoroughly evaluate a property by either visiting the site yourself or sending your agent.
· Since you will need to judge its resale value, keep in mind factors such as location, architectural condition of the house and additional costs on repairs and improvements.
· Bear in mind other economic growth factors like opportunity for development in the area, job growth and disposal income of residents.
· Try to work on getting discounted rates on the distressed loans from the bank.
· If you want to sell the property it is important to make it marketable and worth buying
The foreclosure landscape is both competitive and very dynamic. It is therefore crucial to conduct a thorough research and then pour your hard earned money into investments.
