Foreclosures are always the best target for home flipping endeavors. The main reason is that a real estate investor or a potential homebuyer can easily purchase a foreclosed property at a lower price. In the U.S., the foreclosure rate is on the rise with more than a million foreclosures expected this 2007 alone. It was also reported that in 2006, the national average in buying foreclosed homes was estimated at 25 percent lower than the home’s real market value.
The biggest advantage in buying foreclosures is the huge amount of savings you can get. Foreclosed properties are usually under the care of banks and lenders who, in turn, sell them at much lower prices in a bid to recover money still owed on the properties. Foreclosures happen when the homeowner fails to pay the monthly amortization for extended periods of time
after which a notice of default is filed, depending on the state. The monthly payment, when missed more than once, jacks up interest rates sometimes to double digits. Many new homeowners have fallen victims to foreclosures because of failure to build little or no equity on their properties.
In buying foreclosed homes, you will have to do a lot of research as much as possible. Gather information from banks and lenders or search on the internet for a list of foreclosures and their locations. You can also buy magazines and newsletters that provide a list of properties in default or search through public records and then evaluate market values and sale prices of comparable properties in the neighborhood.
You have three options from where to purchase foreclosures – pre-foreclosures, at auctions and from real estate owned properties also called REOs. Pre-foreclosures enable you to buy a house directly from the owner before the bank finally forecloses the property. This is an advantage because less capital is required and you can get all the information you need right away. During this stage, you can personally check the house and the title and after reaching an agreement, the owner signs a deed and turns over the property to you. From there, you assume the mortgage and provide the bank with previously missed payments.
Auctions are also a good way to scout for foreclosures. The way it’s done, though, varies from state to state. Auctions can take place in the country clerk’s office, in front of the foreclosed home or on the courthouse steps. This method can provide you with the greatest benefit as you can get up to 40 percent off from the home’s real market value. But then, there are risks too because you are not allowed to inspect the house, you need to pay cash normally using a cashier’s check and there are times when the current homeowner won’t move out of their property. The burden of evicting the previous owner then is on you.
Finally, the banks and lenders are your other best resource for foreclosures. For neophytes in real estate investment, these firms offer the safest deals due to the absence of taxes, liens, appraisal fee and tenants to evict. Real estate owned properties (REOs) are safer as you can check the home before buying and you can even demand a clear title and title insurance. Lenders eager to dispose of their properties may offer very affordable terms and finance the property at below-market value or will require a lower down payment.
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