Investing in foreclosed real estate can provide a tidy return on investment. However, purchasing distressed properties is generally not quite as simple as the late-night infomercials would like you to believe. The following tips discuss the pros and cons of foreclosed real estate to help determine if this type of investment opportunity is suited for you.



Foreclosed real estate is first placed on the market through foreclosure auctions. Potential buyers are required to place a bid on foreclosed properties that is equal to the mortgage note balance. Foreclosure real estate is generally sold "as-is" and the buyer is responsible for rehabbing the property.

One little known fact about foreclosed homes is the fact that in some instances the previous homeowner still resides in the house. When investors purchase foreclosed homes through auction and people still reside in the home, the buyer is responsible for eviction. Obviously, this can be a messy and complicated process that takes time and money.

Unfortunately, the majority of foreclosed homes sold through auction aren't a very good deal. Most have a mortgage note balance that is more than the home is worth. Additionally, a large percentage of these distressed properties require considerable repairs and renovations to return them to livable condition.

If foreclosed properties aren't sold through auction, they revert to the bank. At this point, they become bank owned properties. The bank holds the title and is responsible for maintaining the property until it is sold.

Bank owned real estate is usually priced higher than foreclosure homes because the bank wants to recoup their losses. However, there is a bit more room for negotiation with bank foreclosures because it costs the bank money every day the house sits vacant.

Bank foreclosures are offered for sale through individual lenders websites. Nearly every bank offers listings of their real estate owned properties, along with contact information of the realtor or bank loss mitigator handling the sale of the property.

Most foreclosed real estate is handled through the bank's Loss Mitigation Department. Buyers should be prepared to present multiple counter-offers. Realize the banks want to receive a good return on their investment and they aren't going to just give the property away.

If you feel the foreclosure home offers the potential for profit, be persistent in negotiating with the bank. Realize, nearly everything is real estate is negotiable. If the bank won't budge, be prepared to throw in the towel and locate other properties that suit your needs.

When purchasing foreclosed homes is it important to obtain comparable price reports on other homes sold in the area. The primary goal of purchasing foreclosure real estate is to obtain it significantly under market value. If other homes in the area have been selling for $150,000, buyers should anticipate paying around $120,000 to $130,000.

It is also important to obtain repair estimates prior to making an offer on foreclosed real estate. If you are a handyman and plan to make repairs on your own; factor in the amount of time required to complete repairs, along with the cost of materials.

Last, but not least, seek out private investors who specialize in purchasing bank portfolios. When real estate investors buy in bulk they obtain houses at wholesale prices. Oftentimes, investors will purchase dozens of properties at once. Since they carry a large inventory, investors are eager to pass their savings along to you. In some cases, foreclosed homes can be purchased from private investors for as low as seventy cents on the dollar.