Pre-Foreclosures Can Make the Best Investment Properties

shutterstock_246334387Context is key to your success when making any kind of an investment.  There are some who use the context of a foreclosure to get an upper hand in investing in a property with high value, but with less money down and a higher return on Investment.  How can this be?

A foreclosure occurs when the owner is no longer able to pay the mortgage on their property and their assets have been seized by the bank to be sold on the market or to be put up for auction.  A pre-foreclosure as you can probably guess is when the property is at the very early stages of being repossessed.  Depending on the state, foreclosures can be lengthy.  As the investor, you’re hoping that the foreclosure is a lengthy process allowing you time to make an offer on the property and for the owner to have time to make a decision and to complete the transaction.

As a homeowner weighs the pros and cons of buying back or selling their property, you have the opportunity to offer them the advantage selling their property immediately.  In many cases you’ll be able to offer less money than what the property is worth because the property owner will be worse off if the property becomes foreclosed.  You shouldn’t feel bad about this.  Both parties have benefits from this early transaction.

On top of preventing a foreclosure, the property owner can avoid getting a nasty reduction in their credit score and receiving a deficiency judgment, which in some states allows the lender to continue to seek compensation after the foreclosure if the foreclosure was not enough to pay all expenses on the property.

Your benefits of course are great as well.  As an investor, you’re getting access to this property before anybody else is able to.  It’s also a faster transaction.  Instead of working with the government to gain ownership of the property, you’re working with somebody who is in a hurry to give their property up to you!

Be Careful:

Just because a property is going up for foreclosure does not mean that it will have return.  Your ideal situation is that it’s not the property that is having problems, but simply the owner that is not able to make ends meet on the property.  If the property has mortgage loans that are higher than the property value, then you might want to rethink this.

Good Luck!

Keeping in mind some of the risk factors, and doing proper research, purchasing a property be for it is up for foreclosure can be of benefit to both you and the seller.  Happy investing!

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