A good look at the 2014 – 2015 real estate market shows a clear trend towards foreclosure investments. As property rates are rising, lenders are trying actively to clear their accumulated inventory by selling at competitive rates to investors. More than one million foreclosed properties are still available for purchase but pre-foreclosure properties seem to be the emerging arena for investment at present.
What’s Great about Pre-Foreclosure Properties?
Pre-foreclosures are a slightly different category of investment. As the term ‘pre-foreclosure’ suggests, the property has not yet been taken over by the bank. The bank is in the process of recovering its property and the original homeowner may still be in residence. The shortest way to get into this market is by negotiating with the homeowner and buying the property from them.
The trick to getting a pre-foreclosure home is to quote a price that the homeowner will like and accept immediately. Sometimes deals fall through. In that case, the homeowner and the lender may work out a settlement and they then decide to sell the home as a short sale. However, industry expert Jeff Adams states that your objective as a buyer should be to quote a rate that just covers the home value. This rate might be below the market-rate but it still allows the homeowner to sell the home, clear his debt, and have a little left over to invest in a smaller, cheaper home.
How do you Invest In Pre-Foreclosures?
- The process starts by finding properties that are in distress. You can check with banks, local collection agencies, etc.
- Once you have a list of properties, visit the areas and learn as much as you can about the area.
- Contact the defaulting owner and discuss this situation. Most owners are willing to sell but they have a two to three month window period to make up the missed payments.
- Negotiate the purchase price, convince the owner to sell, and make the deal.
Pros and Cons of Investing in Pre-Foreclosure Properties
Industry expert Jeff Adams, the #1 real estate trainer, states that most buyers have a good chance of finding affordable properties as the homeowner is usually motivated to sell. However, the entire pre-foreclosure process is only three weeks long. As a buyer, you have to do your research and house investigation as soon as possible to ensure that you do get the house. There is a chance that the pre-foreclosure process will stall in the middle if the homeowner can make enough money to cover the missed payments. In that case, you will have to move on and find another property to invest in.
The biggest thing to keep in mind is that pre-foreclosure properties are actually in much better condition than foreclosed properties as the homeowner is in residence. The owner is already behind on payments and he is motivated to sell. It all comes down to just how accurately you guess the house price and gently nudge him to sell.
