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Bank Foreclosures for Real Estate Investors
Many real estate investors focus on specific types of real estate, such as commercial property or upscale homes. For those who ignore bank foreclosures, there is a large market full of potential profit waiting for you.
The goal of real estate investors of course is to make money. Typically, investors have a short-term plan for creating enough income to cover their current expenses. They also have a long-term plan for creating a retirement income. Bank foreclosures offer both short- and long-term investment opportunities, and offer the ability to make a larger profit at both.
Long-term real estate investment generally involves purchasing property that can be rented. The rental income is used to cover the expense of paying the loan used to purchase the property. In the future, the rental property may even be sold for a profit over the original investment. Because bank foreclosures usually sell for a fraction of the actual market value, it is much easier for the long-term real estate investor to realize a profit.
Short-term real estate investment involves purchasing property that can be sold quickly for a profit. Again, bank foreclosures offer an incredible opportunity because they sell below the actual market value. This makes it easier for the real estate investor to purchase and then resell at a profit.
There are three possible ways to invest in bank foreclosures:
1. Pre-foreclosure. With a pre-foreclosure home, the real estate investor is required to locate the property, negotiate with the owner and, very often, negotiate with the lender. Pre-foreclosure property carries the risk of the owner backing out after the investor has worked hard with negotiations. It also carries the risk of acquiring property against which there are debts, like property taxes, that must be paid. Those risks can be dealt with by simply doing thorough research before making a purchase. Pre-foreclosures offer the possibility for making a large profit quickly if the investor is willing to put in time and effort.
2. Auction. In a foreclosure by sale, a bank foreclosure is sold at public auction. A real estate investor placing a bid will be competing with several other bidders, sometimes even the foreclosing lender. The investor receives no disclosure from the seller, no warranty, is usually not able to see inside the property. Again, thoroughly researching the property prior to the sale will help eliminate the risks by informing you of the status of the title, the condition of the neighborhood, and whether there are any other outstanding debts. This is a much faster way of acquiring foreclosure property cheaply, but carries far more risk than the other two methods.
3. REO. Real Estate Owned property is a bank foreclosure in which the ownership has been transferred to the lender. Because lenders typically have no desire to own the property, they are willing to sell for much less than the original loan value in order to be rid of it. While the price may be higher than if purchased through pre-foreclosure or auction, the lender usually provides a disclosure statement prior to the sale. In addition, some lenders are willing to finance the purchase for real estate investors, making it easier to acquire the property.
Regardless of the method of purchasing bank foreclosures, the savvy real estate investor will be sure to do their homework prior to the purchase. This includes researching the title and comparing the property to determine the actual market value. If possible, the investor should also drive by the property to get an overall feel for the neighborhood, surrounding property values, and the condition of the property.
About the Author: Alex Diaz has worked in the foreclosure business since 1998. Visit his website for Bank Foreclosures