Reasons why buying a foreclosure is a good investment

Foreclosures are the perfect investment option for investors because they are sold at discounted prices. You are receiving equity built property. Foreclosures can be purchased at foreclosure auctions or through the purchase of REO (bank owned real estate). Short sales are prior foreclosures and have not gone through the foreclosure process. They are still owned by their current owners who are in default or about to default. The seller must get approval from your lender to sell the house for less than what you owe on the mortgage. Short sales are also good investments because they are sold at reduced prices. However, there is no guarantee that your offer will be accepted by the seller’s lender, and the closing date cannot be determined until the seller’s lender approves the sale. If you don’t have time to wait, REO and foreclosure auction properties are better options.

Buying at Foreclosure Auctions

Foreclosure auctions are open to the general public. The highest bidder is awarded the property in cash and is issued a deed that must be recorded with the county recorder’s office. Each state conducts its foreclosure sales differently. In some states, foreclosures are done by the sheriff in the county courthouse. Other sales are made by auction companies or private trustee sales on the property. You can also buy foreclosures at online auctions. Some states allow the previous owner to trade the property after the sale in accordance with the legal trade laws. You should always check the foreclosure laws of the state in which you are buying the property. For information on public foreclosure auctions, you can check your local newspaper. Notices are also posted in county and private courthouses. The information is also available from many online sources.

Due diligence

Before you decide to bid on a foreclosure auction, check recent comparable sold properties in the area the home is in to make sure you’re not overpaying for the property. You will need to do a title search to find out if there are any bonds on the property. Title insurance is not available on auction properties. When you buy a foreclosure auction property, you are responsible for paying the liens and for evicting any previous owners or tenants still living on the property. Federal foreclosure laws protect tenants from eviction due to foreclosure. A tenant who has a lease may remain in the property through the end of the lease term and for an additional 90 days after receiving a notice to vacate. Tenants without leases can only stay 90 days after receiving an eviction notice. If you live in the area, you must stop by the property to see if it is vacant.

Also, be sure to do an inspection of the property on the day assigned for inspections. Most foreclosed properties are not in good condition, so you must leave room in your budget for repairs. For those of you who are handy, you can save money by doing some of the work yourself. If you are the winning bidder, you will be issued a deed that must be filed with the recorder’s office in the county where the property is located.

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REOs are foreclosed properties that did not sell at auction that lenders have repurchased and listed with local Realtors® for sale at reduced prices. Since REOs offer less risk, REOs are very popular with first-time homebuyers and new investors. They are also sold at or below market values. You can buy title insurance and you don’t have to worry about the bonds. REO are vacant so there is no eviction issue from former owners or tenants. The best way to find an REO is to work with a local Realtor® or search online at websites like Foreclosure.com. REOs advertise on the MLS, and you can also find them online and advertise in local newspapers. You make an offer the same way you would on a second-hand property, but it can take up to a week or two to get a response from the lender. You don’t need cash to buy an REO, but banks prefer cash because they know you’ll be able to close quickly.

Both REO and foreclosure auction properties offer investors/buyers the opportunity to buy low, rehab and sell higher, or hold the property and lease it until the market picks up. Investors should take advantage of buying a foreclosure sale property while opportunities are still available.