Before you decide to invest in a foreclosed home, you should familiarize yourself with both the advantages and disadvantages of this type of property investment. Knowing what youre getting into ahead of time may just save you a lot of hassles and headaches down the road.
There are three foreclosure phases where it is possible to purchase a financially distressed property. These phases include the pre-foreclosure phase, the auction phase, and the REO (real estate owned) phase. Following you will find a description of the three phases along with the pros and cons for each.
The Pre-foreclosure Phase
This is the phase where the owner of the real estate still has control. He has defaulted on his loan and is facing pressure from his lender to pay up or face the consequences. He is desperate to sell the property and clear his credit; this could add up to big savings for you.
Pros
Discounts from 20 to 35 percent Low down payment Opportunity to inspect and research property Flexible sales agreements
Cons
Absent or unreachable property owner Tough competition A great deal of courthouse research There may be liens on the property
The Auction Phase
This is where the most money can be made buying foreclosed homes. At auction, the foreclosed property is sold to the highest bidder. If you do your homework before hand, you could realistically buy a property for a fraction of its value.
Pros
Discounts from 34 to 45 percent Excellent return on investment Highest profit potential
Cons
Not able to inspect property Auctions can be postponed Need large cash down payment at auction Improper research can lead to disaster Could invest a lot of time and still not win the property
The REO Phase
The REO phase occurs when the lender seizes control of the property in order to resell it and cut its losses. Since the property has no value to the lender unless it sells, the lender is often extremely motivated to make a quick sale.
Pros
Discounts from 5 to 15 percent Title free from liens Tax arrearages paid Lender may do repairs or offer discount for repairs
Cons
Low return on investment
Remember; when you invest in real estate, there is a certain amount of risk that you must take in order to make a profit. This means that the properties that offer the most potential returns are the most risky. Be sure to calculate how much risk you can afford to take before investing in foreclosed homes.
One of the reasons that you don't want a foreclosed home is because the minute that your home goes into the foreclosure process it is publicized in the local newspaper. This is embarrassing and it looks irresponsible.
There are many places to go to ask for help so your home doesn't become a foreclosed home. The first place you should go to is a bank and ask for a personal loan or an equity loan. If you have been paying on your home for several years you may have some equity built up in it. A bank will give you a loan and you can pay it toward your mortgage. Some people do this and pay up an entire year of payments until they can get back on their feet.
Many people ask family or friends for a personal loan so they can prevent their home from becoming a foreclosed home. If you have family or friends in a position that they can help you and they would understand then you should ask them.
You should never be ashamed to ask for help when you need it, especially when you are trying to avoid a foreclosed home. Most people understand how important it is to keep your home and they will help you with a loan. Banks are the best, especially if you can get an equity loan off of your home. This is because it will be added to the principal balance of your loan and you can use it to get caught up and in a better financial position. The best part is that you can save your home.
Both James Klobasa & Joseph Smith are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
James Klobasa has sinced written about articles on various topics from tax, Marketing Secrets and Arts. James Klobasa, once broke with no job and $20,000 in debt made a choice that changed his life forever. That choice was investing in Real Estate. With the founder of, The Little Building Co. you too, can learn at. James Klobasa's top article generates over 135000 views. to your Favourites.
Joseph Smith has sinced written about articles on various topics from Foreclosure Help, Real Estate and Foreclosure Help. Joseph Smith has been educating buyers on the finer points of purchase at ForeclosureDeals.com for over ten years. C. Joseph Smith's top article generates over 3350000 views. to your Favourites.