Article Keyword Videos to Watch
Click on the image to start the video.
Images - Links - Articles
Investing in Government Foreclosures
Investing in government foreclosures is an excellent way to begin investing in the foreclosure market.
When an owner defaults on a loan that has been insured by a government agency, the agency pays the lender and acquires ownership of the property. These properties, known as government foreclosures, are assessed, and then sold at public auction.
There are advantages to investing in government foreclosures. The first advantage is that the agency is trying to regain the money they have paid the lender. For this reason, the agencies government foreclosures are a good way to find cheaply priced property. The agency does not want to hold on to the property in hopes of receiving more money.
A second advantage to investing in government foreclosures is that there are so many of them. Because of the number of government foreclosures, government assessors are typically in a hurry to complete the assessment. That often causes property to be undervalued, leading to a lower sales price, which leaves more room for profit. In addition, with a large number of government foreclosures available, agencies are more willing to accept a lower bid.
Finally, government foreclosures usually do not need major repairs. While the government agency usually secures the property against vandalism or damage, the homes often sit vacant prior to being sold.
Typically, the repairs are cosmetic, like painting or beautifying the yard.
There are also disadvantages to investing in government foreclosures. The first disadvantage is that obtaining government foreclosures is not as simple as bidding on the first piece of property you find. Each agency has its own rules regarding the bidding process. Some agencies will not allow bids without a real estate agent, while others have a large selection of property available for anyone’s bid.
A second disadvantage to investing in government foreclosures is the lack of warranty. Government foreclosures are sold “as-is.” While most properties require only minor repairs, it is possible for the property to need a major overhaul before it is marketable. It is always a wise choice to inspect the property prior to bidding. Determine the extent of repairs that are necessary, and include those costs when calculating your potential profit.
Finally, government foreclosures are sold on a cash basis. When investing in bank foreclosures, it is sometimes possible to arrange financing through the lender that is selling the property. When investing in government foreclosures, it is necessary to pay in full at the time of sale. Any financing arrangements must be made with a lender other than the agency.
Before investing in government foreclosures, be sure to read the full details of the property. Some HUD homes, for example, carry the requirement that the buyer to live in the home for at least one year. Some property is available without a broker or real estate agent, while other property can only be purchased using authorized brokers or agents. In addition, many listings require an “earnest money deposit,” which is a cash deposit paid at the time the bid is placed. The amount varies according to the value of the property, and is refunded to non-winning bidders.
About the Author: Alex Diaz has written widely on foreclosure and real estate. Visit his website, Foreclosure Deals for information and Government Foreclosure Listings