Foreclosure Investing: Is it Worth the Risk?

By
Real Estate Agent with Keller Williams Realty Alaska Group

The word foreclosure is one of the most popular words buzzing around the Real Estate industry in the current market. Whether we like it or not, foreclosures are all around us, especially in areas such as Southwest Florida, Nevada and California. These are all areas that got hit excruciatingly hard when the real estate bubble burst. Although there are many contributing factors and each has its own story on why, the fact remains; the market is overwhelmed with these properties and in turn, presents nice opportunity for investors.

It is known that the foreclosure market is sometimes a lucrative venture. On the other side of the spectrum, it is also known for being very risky and many people have lost their shirts trying to nail good deals. The difference between those who have succeeded and those who have failed ties directly into their knowledge of what they were facing. One person took the time to really understand the process and the other jumped right in, head first.

Below are the 101 basics of the foreclosure process:

1.       Pre-foreclosure: This is the first step in the foreclosure process. This is where the homeowner has defaulted on their loan and the bank is looking to collect what is due. If the homeowner does not come up with the funds, it will move into the next stage. This process can take up to 6 months. In the current market, however, there have been instances where it has taken a year or more.

2.       Auction/Sale: This is actually the process of selling the home at an auction. The bank or lender is making its final move to collect money for the home. Most times, this home will go back to the bank and proceed to the next stage. Once an auction date is set, it only takes one day to complete and the foreclosure on the homeowner is final. 

3.       REO: Meaning, real estate owned, this property is now the property of the bank. The bank will put this property on the market through a realtor or property management company.

So what is the best step to buy a foreclosure home in the process? It all depends on the investor status you are in. For example, each step has its pros and each has its cons.

A pre foreclosure home is very rich in pros. Not only can you make a decent buy at significant discounts in market value, but you can help the homeowners in trouble make a sale. This creates the infamous win -win situation. A downfall is the fact that sometimes it is hard to contact the owner to make this happen. 

During an auction you can receive huge discounts on properties and get a great return on investment. However, this is a very risky process at times. A foreclosure can have many problems surrounding it. It is best to do careful research on properties, which can often times be very difficult. It is also recommended t hat a title search be done before deciding on a property.

If you buy the home back from the bank, you will be rest assured it has a clear title. This takes the risk out and makes the risk factor very low and almost non-existent for most properties. The only downside to this method is the return on investment is fairly low.

In general, foreclosures can be a good thing if you know what you are doing. Before you take on any foreclosure home; know about the home, inspect the home and never assume anything.

Comments (1)

Bruce Hicks
Best Homes Hawaii - Honolulu, HI
Your Best Hawaii Realtor!

Aloha Ryan Tollefsen maybe it would help if you posted a photo in your profile.  Active Rain is a place of learning and I have received referrals from it.  Please see my recent blog.

Dec 03, 2017 05:12 PM