Real Estate Foreclosures - Not Easy, But Potentially Profitable
One way to obtain properties to flip is to invest in real estate foreclosures. Foreclosure refers to the process where the mortgage holder takes back the property because the homeowner is no longer making payments. In a nutshell, here's how the major steps in the process work:
The homeowner misses a certain number (which will vary from bank to bank) of payments and ignores the bank's attempts at communication or presents the bank with payment options that aren't acceptable. The bank then posts what's called the NOD (notice of default) in the local newspaper. They then hold an auction to take bids on the property, and the winner takes over the title to the property. But there are many smaller steps along the way. The whole process can take as long as a year, and is done a little differently in different states, counties, and cities. In most places, it's not as easy as the people selling foreclosure courses on late night TV make it sound.
We focus here on the investment opportunities presented by foreclosures. However, if you or a close friend or loved on is facing one, the best advice we can offer you is to contact the lender as soon as you know you will have problems making payments. The lenders don't want to foreclose. They are usually willing to accomodate the property owner in setting up a payment plan (referred to as forbearance).
If you intend to make an effort to buy foreclosure properties, you first have to learn where to find the notices. As we mentioned, they're required to be posted in the local paper. There's frequently one paper in the county that's considered the 'legal newspaper' where foreclosure notices must be posted. Sometimes you can register to have your name or e-mail address added to a mailing list. If you can find out about an imminent foreclosure before the bank posts the notice, you have a much better chance of being successful at obtaining the property. However, this will require that you deal with the homeowner directly, which will require compassion and tact. Realize that this person is about to lose the property that they may have been making payments on for years. They may be embarrassed and loath to trust you, so be honest and gentle. Remember, however, that if you treat the owners fairly and with respect, it can result in your getting a reputation of the desirable sort and being recommended in future pre-foreclosure situations. There are a number of differences between purchasing a property through normal channels and purchasing it via foreclosure. One of the main ones is the difficulty (or impossibility) of conducting a thorough house inspection. While it's possible for you to make such good friends with the homeowner that he allows you to send over an inspector, it's highly unlikely. Probably the best you'll be able to do is your own visual inspection. You'll have to decide if the price you think you can get the property for compensates for any uncertainty as to the house's condition. There are many ways of investing in real estate foreclosures. You can buy a property before the process begins, during the process but before it goes up for auction, at the auction, or after the auction from the investor who purchased the property. Most people that buy foreclosure property on a regular basis eventually begin to specialize in one of these options.
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