When a person buys a home, he/she usually has to take a loan. The lenders, generally banks, keep the title to home collateral in this case. The ownership of the home is transferred to the lender when the person is unable to pay the dues and installments in time. This transfer of ownership to lender is called Foreclosure. Buying foreclosure has been compared to playing poker. As an investment, it has its own risks.
The lenders first determine if there are any junior liens as well. When they find any pending loans etc, they pay everything off so that they themselves have a clear title to the property. Once this is done, the lender adds up all costs to the loan amount to be recovered, and then again resells the property so that they can recover the expenses and loan amount. This is an ideal time for investors to buy such property. Buying a property that has been foreclosed has many gains.
The first and most prominent benefit is the fact that all properties bought from lenders will have clear titles and ownership rights, thereby saving you the trouble of doing any research.
Next is the fact that foreclosure is not for profit booking. When the lenders sell foreclosed property they want their money back, so they are ready to sell the property cheaper than what it could have fetched in open market under normal conditions.
How to buy foreclosed property:
The first step is to collect information. The best idea is to make a database specifically so that you will have separate data on all the properties and markets in clear sets. In addition, that way you will be aware of any specific laws that you may need to abide by while making an investment. The next step is to directly contact the foreclosure owners and start negotiating with them. If you have the address of property but not the name, online directories may help you find the relevant names.
As a beginner, buying foreclosure property on your own can be risky. Try to get help from an agent if you are trying to buy such property. They have all the required knowledge.
One risk is when buying foreclosed property at auction, sometimes they give just a week to deposit all the cash, and if you fail to do so, you may lose all your deposit. As you keep on investing and making money, you will gain experience about bad construction, poor soils, problems with septic systems etc. Background reading and relevant information is extremely important before you get into foreclosure investing. Foreclosure laws in your state, priority of liens, bidding at auctions, title insurance, and bankruptcy are some key areas where you should gain full knowledge. That way you will be able to make better and safer investments.
Property investment is not an easy game, and must be played only with caution and care. Some compassion for the person whose property is up for foreclosure is also essential.