Real estate investment can yield big returns depending on kind of properties people are investing in. On one side of the spectrum are regular properties that you buy at a given price and sell at (hopefully) a higher price to realize profits. And then are properties which are in the pre-foreclosure stage, which are a better option to invest in as they can yield higher returns.
For those people who are beginners and want to start it on a high, properties in pre-foreclosure represent a sure shot winning formula. In this article real estate expert Jeff Adams shares how one can make a fortune from pre-foreclosure properties.
What are Pre-foreclosed Properties?
When a person buys a house and pays the down payments, then he/she is legally the owner of the house, though he is responsible for honoring the mortgage payments on time. But if due to some reason, the owner defaults on mortgage and is not able to pay it back then the money lender (which is almost always the bank) will issue a Notice of default or lis pendens to the owner. Even after the notice period if the owner is not able to pay the debt then his property will be confiscated and put for auction to recover the money. This process is called foreclosure.
A property which is in the stage between issuance of notice and foreclosure is known as pre-foreclosed property.
Advantages of Buying a Pre-foreclosed Property:
The owner of the house may put the pre-foreclosed property for sale in order to get some small amount of profit and to avoid foreclosure. For people who are beginners in real estate investment, pre-foreclosed properties are like a boon because pre-foreclosed property has a lower selling price due to several reasons.
- Lender might just want to clear the book.
- The selling price is often low if only a small part of mortgage was remaining to be recovered from the owner. And for properties in pre-foreclosure stage, generally property owners come up with some attractive offers and low prices. Also one can work up with the original lender while buying a pre-foreclosed property to avail creative financing options like considering only the original loan and letting off any arrears.
- Unlike foreclosed properties which are sold ‘as is’ in auctions, the owner may consider improving the condition of the property in pre-foreclosure stage to avoid foreclosure. So pre-foreclosed properties may be in better condition than foreclosed properties, making it easier to sell them and earn profit.
Points to Consider Before Investing in Pre-foreclosed Properties
Study the location of the property as location is crucial in real estate. Be aware of the laws of your state regarding pre-foreclosed properties. Go through the procedure of buying pre-foreclosed properties minutely, as sometimes the owner can stop the selling in the middle of the process if he/she is able to pay the remaining mortgage. Remember that even though the owner puts the pre- foreclosed property for sale, he/she is still the rightful owner of the property. Familiarize yourself with the current market trends and decide whether investing in pre-foreclosed properties at the moment will yield the benefits you are looking for..
How to Make a Fortune from Pre-foreclosed Properties
As an owner of the pre-foreclosed property you can live in the house. But that will not yield any profit. But if you renovate it a little bit and give it on rent you get a fixed monthly income that will compensate the expense of renovations. And when the market is ‘right’, you can sell the property for a high price.
Of course, if the time right just then, you can immediately sell the pre-foreclosed property you purchased and make a nice profit out of the deal.
Another way to make a fortune out of pre-foreclosed property is to use it for business purposes. Suppose one buys a pre-foreclosed property in a well known market area, then almost everyone is aware of its reputation. And if a new business is started in that area then it will grow fast and yield profits that may neutralize or even exceed the purchasing cost of the property in no time.
Pre-foreclosed property v/s Foreclosed property – the Former Wins
It is ideal to buy a property which is in the pre-foreclosure stage, as the lender has not entered into ownership of the property. Also prior inspection of a house under foreclosure put for auction is not allowed whereas in pre-foreclosed state one can check the property and decide whether to invest or not. A pre-foreclosed property is always sold at a lower rate than the foreclosed property as in pre-foreclosure stage the owner of the property is aiming at avoiding confiscation of his property rather than getting high profits. In foreclosure the lender may sell the property at a comparatively higher rate to recover the pending mortgage.
So, with thoughtful consideration and financial intelligence one can make a hefty fortune from pre-foreclosed properties.
