Three Stages Of Foreclosure Investing

Most investors see foreclosures as a three stage process...pre-foreclosure, foreclosure auction, and REO or real estate owned properties. Each of these stages offers unique opportunities for the investor. Pre-foreclosure is when the home owner is delinquent and the bank has started the foreclosure process. The owner can still list their home for sale, often times arranging for a "short sale", where the bank will look at purchase offers that will not result in paying the mortgage off in full. The bank will forgive the difference because it will be less of a loss than if the bank has to foreclosure on the property, prepare it for sale, and then re-sell it at a later date. Investors can often buy these properties at 15-20% below market value. If a home is foreclosed on, the owners must release the home to the bank, and the bank can then prepare the home for auction, or rehab it a bit and list it on the market with a real estate agent. If the home goes to auction, the investors flock to the courthouse steps to try and get a deal. Competition is fierce, but if you know the potential value of a home, you will know if the numbers work for your investment strategies. If the bank decides to list the home on the market with a real estate agent, then deals are a bit more difficult for the average investor. The home is usually in good shape, and a primary residence buyer will likely buy the home at near market value. So in summary, the better deals are usually found earlier in the process; however, it takes more skill and knowledge on the part of the investor. The earlier in the process you buy, the further out you are attempting to projecting the sale price of a home. If you know the current value of a home, as well as how elements of time, market cycles, and making repairs, can all affect the resale of a home, you can do very well with buying foreclosures.