How to Invest in Pre-Foreclosures

When executed smartly, the technique of investing in pre-foreclosures can bring you unbelievably great returns. However, investing in pre-foreclosures depends on various conditions such as their availability, changes in the market conditions, the location of the property, condition of the home and the presence of other investors.

A good look at the 2014 real estate market will tell you that it is an ideal time for investment, especially foreclosures. Not only are there a number of pre-foreclosure and foreclosure properties available on the market, but also the opportunities to translate this investment into a heavy profit are numerous.

Foreclosure v/s Pre-foreclosure

 The foreclosure process is initiated when a borrower fails to clear off his pending loan amount even after receiving a notice of default and a stipulated timeframe to clear his debt. The lender is forced to put the collateral asset (property) on sale to recover the pending loan amount. The foreclosure process usually ends in an auction where the property is acquired by the highest bidder and the lender receives the purchase amount as a repayment towards his loan.

In the case of pre-foreclosure, the objective is to purchase the collateral asset (property) directly from the homeowner. Since the pre-foreclosure stage is still an early stage of mortgage delinquency, the homeowner still has control over the sale and won’t be swayed easily. However, as an eager investor, if you can strike a deal which is a win-win situation for both parties (you and the homeowner), you can acquire the property for an amount much lower than the market value and the homeowner can clear off his debt.

The trick to conquering the pre-foreclosure stage is making an offer the homeowner can’t refuse.

How to Make a Good Pre-Foreclosure Offer?

 Your objective is to buy property for lower than market value. The homeowner’s objective is to clear off his debt by striking a deal which will benefit him individually, too.

In order to make such an offer, you must:

  • Thoroughly examine the property
  • Determine its market value
  • Take into account renovation costs, if any
  • Consider legal fees
  • Ask the owner for his expectations from the sale
  • Contact local real estate agents to review your plan

Based on the above parameters, you can decide your purchase amount and enter into the negotiation / discussion stage with the owner.

Scouting for Pre-Foreclosures

 One of the biggest challengers investors have to face in the pre-foreclosure process is the very first step – finding a pre-foreclosure property. It is not very often that pre-foreclosure properties are advertised; hence, you will have to devise a smart strategy to spread your roots wherever there is ground water.

Some strategies you can use to find pre-foreclosure properties are:

Advertising a “home buying” service on websites and in newspapers.

  1. Creating an internet presence about your “home buying” service with a website.
  2. Networking with local real estate agents who are always on the lookout for new properties on the market.
  3. Browsing through public records to locate pre-foreclosure properties.

Once you’ve located a good property, you can enter into discussions with the homeowner to take matters ahead.