The Risks and Rewards of Investing in Foreclosures

There are many different things to invest in these days. One investment route which individuals take is with regard to foreclosures.  Foreclosures occur when the current homeowner of a property fails to pay their monthly mortgage and lender retake possesion. There are various risks and rewards with this type of investments, we will mention some of them below.


foreclosuresPhoto: taberandrew


Advantages and Disadvantages to Buying Pre-Foreclosure Properties.

One type of property sale which relates to foreclosures is the pre-foreclosure sale. A pre-foreclosure sale occurs when the lender allows the homeowner to sell the home and pay what they can. The lender often agrees to this because they do not have to resell the home, and the homeowner prevents foreclosure. The investor also benefits from this type of sale as well.

Some advantages to purchasing an investment property via pre-foreclosure sale include discounted price, speedy purchase, and wonderful profit opportunities. The investor who buys property by this way may find that the homeowner is hard unwilling to sell. The research is cumbersome and there are other potential buyers who wish to purchase the property.

For those who wish to purchase property via a pre-foreclosure sale, they should do their independent research. Approach the homeowner and ensure that they make an offer that will not cause them to lose money.  By doing so, the investor may find that buying a house by pre-foreclosure sale will work to their advantage.

Advantages and Disadvantages to Buying at a Foreclosure Auction

Another way to purchase foreclosure property is through a foreclosure auction. Auctions of this type are usually held at the local courthouse of the county where the property is located. This is a common way for foreclosed properties to be sold and this too has its pros and cons.

The main advantage to purchasing the property at a foreclosure auction is the reasonable price for which one can bid on a property. Although there will be other bidders, the resulting price is usually one that is quite attractive. Another advantage relates to the profit which the purchaser will see when they resell the home. When the highest bidder goes to resell the property he will gain a good profit margin from that sale.

Purchasing a home at a foreclosure action, have a few disadvantages. The first disadvantage to buying a home this way relates to the inability to inspect the property. The bidder can not inspect the property, as auction homes are usually sold. Another disadvantage is that the purchase price and deposit are due via cash or cashier’s check. In many instances which may be difficult for many investors to obtain on short notice.

Advantages and Disadvantages of Buying Real Estate Owned (REO) Properties

One last type of property purchase which relates to foreclosures is real estate owned properties, or REOs. In REO  the property returns to the exclusive hands of the lender and then needs to be sold from that point. The lender is looking to sell their newly acquired property as soon as possible since they do not want to be in charge of the property and its necessary maintenance. The lender will then look for potential buyers of the property.

Some advantages to buying an REO are that they usually have the as good title, property taxes will be up to date and repairs may have been made to the property by the lender to ready it for sale. As for the disadvantages, those who purchase REOs may find that the savings which they see by purchasing an REO are not as great as they could be and therefore, the profits may not be as great as well.

You may read: 5 Pits For Your Next Investment Property

Conclusion of Foreclosures.

When purchasing property in any of the previously mentioned ways there are a few things to keep in mind when doing so. It is extremely important to do independent research with regard to the properties and purchase methods, ensure necessary funds for the purchase and inspect the property whenever possible. This will help to ensure that the buying process goes as smoothly as possible.