Foreclosure investing
If you are new to real estate investing and considering buying
foreclosure properties, you need to be realistic about what you are
facing. If you feel more sober about foreclosure investing after
reading what I have written below, I will have accomplished my goal.
Foreclosure investing is not a good investment approach for beginners.
I recommend that you have at least a couple of years' experience with
more traditional real estate investing first.
The profits from foreclosure investing can be huge. That makes
foreclosures attractive. There is an awful lot to know in order to
avoid the problems that can occur. If you don't know what you are
doing, one disastrous foreclosure investment can wipe out your capital
and your enthusiasm for all real estate investing.
Three ways to buy a foreclosure property
There are three basic approaches to buying properties in foreclosure
depending on the stage of the foreclosure process: buying
pre-foreclosures, buying at the foreclosure auction, and buying from
lender after the foreclosure sale.
If you buy from the delinquent property owner before it goes to
auction, you have bought a pre-foreclosure deal. Buying at the auction
is self-explanatory. If nobody bids, the lender ends up with the
property.
Buying from the lender after the auction is called buying REOs (real
estate owned) or Repos, (repossessions). Sometimes you will see them
referred to as "corporation owned" or, my favored term, "lender
owned."
REOs are the least risky way to buy foreclosures.
You may have more risk than you would in a regular real estate
transaction, but REOs are less risky than in buying at the auction.
Since REOs are somewhat similar to a regular sale, they can be pretty
safe. You might not get a seller's disclosure.
In California, a lender who acquires a property through foreclosure
does not have to offer a disclosure to you as a buyer. But, if there
are problems after you buy the property, you might be able to sue the
lender who sold you the property, or at least threaten to sue them,
and they might make things right or pay part of the cost. There's a
good chance they will still be around after the sale.
The risks of buying pre-foreclosure real estate
The next riskiest foreclosure purchase is the pre-foreclosure. If an
owner of a pre-foreclosure disappears, you risk not getting anything
from him after the sale. A pre-foreclosure seller might be desperate
and lie to you about the condition of the property and the
neighborhood.
There might be liens on the property that the seller "forgot" to
mention. The big utility bills become the buyer's responsibility if
the pre-foreclosure investor failed to check them out. Ditto for
unpaid property taxes. There may be another person on title who did
not sign the deed, and so on.
