How To Buy Foreclosed Property
Buying a foreclosure can present both great rewards and certain risks.
We recommend you do your homework before you buy.
Record Information Services
has the information you need to begin your research for
foreclosed properties. We gather the pre-foreclosure when it is
newly filed, follow that recording through to sale and update
our reports weekly. Liens and other important information is
also provided for you to make decisions early on whether you
will want to invest it a particular property.
The mortgage foreclosure process creates three sets of real
estate investing opportunities: the "Default/Pre-Foreclosure"
phase, the "Auction/Sale" phase and the "REO" phase. It is
important to be knowledgeable about the risks and the rewards of
Buying pre-foreclosures involves working directly with the
homeowner and sometimes the lender. Your goal is to create a
Win-Win scenario. One win is for the homeowners as they make a
sale and one win is for yourself when you buy the property at a
accomplish a successful purchase,
most experts recommend the following:
evaluate and narrow selections to pursue.
locate loans in default, you can begin this with our
weekly pre-foreclosure report and when a property seriously
interests you then we recommend that you do a title search
the property if at all possible
the property owner's needs
determine the market value of the property, fix-up costs,
potential sales price and profits
default work out by negotiating with the owner and the lender
(8) close on
the property, repair and resell it quickly.
This is a great investing opportunity if done correctly.
Discounts off market value can range from 20% to 35% on average.
A low cash down payment is possible if structured properly. You
have plenty of time to research properties and sometimes unique
and flexible sales agreements are possible.
It is sometimes difficult to contact the property owner. You
will usually have a good amount of competition. You may need to
negotiate with the lien holders.
Finally, the court house research can be cumbersome if you
decided to personally look up every single newly filed
foreclosure or attempt to locate upcoming sales. You can opt to
subscribe to our weekly pre-foreclosure report and let us do all
the research at the courthouse. You will be freed up to spend
your valuable time focusing on the properties you are most
interested in. A title search is strongly recommended and that
research would require your attention.
BUYING AT AN AUCTION
Buying on the court house steps at the auction can be the most
rewarding way to buy properties and the most dangerous at the
same time. The property is publicly auctioned off to the highest
bidder, and the process moves very quickly. When bidding at the
auction, you compete against the lender and other investors.
properties prior to the sale date,
calculate values and potential profits,
determine bid price and
the property to the auction and participate.
Very good to excellent discounts. Investors can achieve 35% to
45% savings off market values and earn an excellent return on
investment. This is the only investing method where you can
really hit the jackpot.
Auctions are frequently postponed, wasting your time and effort.
It is sometimes impossible to inspect the property. Title
Searches are strongly recommended and can cost you some
additional money. Certified checks for a percentage of the
purchase amount may be required with the balance due in weeks,
days or even hours. Improper research can lead to devastating
results. Be informed. Call the auction ahead of time.
Perhaps the easiest way to buy foreclosed property is buying
REOs ("real estate owned"). An REO occurs when the lender takes
back the property to gain possession and cut its losses. The
lender, however, does not want the property because it is not in
the real estate business and is therefore usually motivated to
move the property quickly.
The lender is usually the senior lien holder, thereby wiping out
all other liens at the auction. This means an REO will always
have clear title, which saves a lot of time, expense and worries
when buying foreclosures. Most likely, the lender will also have
paid any property taxes in arrears. The lender may either repair
the property to acceptable standards or allow a discount to the
buyer to accomplish the repairs.
Rewards follow risk. This is a low risk investing method and the
rewards can be on the low side as well. Average savings may
range from only 5% to 15% off market value, although discounts
of 25% or more are possible if you know how.
STEPS IN BUYING A FORECLOSURE
one. Get the newly filed foreclosure information early
so you can plan.
two. When you get closer to buying, verify that the
property is still in foreclosure.
Step three. Determine
the property's fair market value (after fix-up) from local
four. Make a choice. How to analyze the property
for buying from the owner before the sale or at the foreclosure
To buy from
the owner-in-default subtract all liens and the unpaid property
taxes from the fair market value. That will give you the owner's
gross equity. From it subtract all sums necessary to rehab, to
reinstate the delinquent payments, the resale costs
(commissions, transactional expenses and buyers points) and
foreclosure fees. This will give you the owner’s NET equity.
five. To buy the property at the foreclosure auction
you would ignore all liens that were recorded junior in time to
the one going to sale. Then subtract the opening bid of the lien
going to sale and any senior liens (including prop. taxes) from
the fair market value of the property to determine the amount of
equity up for grabs at the sale and determine your maximum bid
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