Foreclosure Investing The Pros And Cons Of Investing In Foreclosures

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Investing in foreclosures is no doubt one of the best opportunities to make money in today’s economy. As with any type of business venture, there are risks involved. Investing in foreclosed properties offers great opportunity to buy homes significantly under market, but there are some risks such as considerable research, under lying lien problems, long-term carrying costs and several others. If you are willing to take the chance on a property or two you may prosper in the end.

Foreclosed homes can be purchased at several stages. First is the pre-foreclosure phase, then the auction phase and finally the REO phase each of these presents their own set of pros and cons. Familiarize yourself with each of these different types of foreclosures, weigh the pros and cons for each, you may be able to avoid a costly mistakes and headaches through the process of investing in home foreclosures.

Take a look at the possible pros and cons at the various stages of a foreclosure:

Pre-Foreclosure Phase

This is the stage where the homeowner is still in control of the property. Although the loan is in default and the pressure from the lenders is just beginning. The homeowner is usually in a position to sell the property quickly and avoid the foreclosure process all together. This means hue savings and large potential profits for you.

Pros

20-40% discounts on the estimate value

Low or no down payment, due to the built in equity

Research and inspection opportunities

Sales agreements that are flexible

Cons

Home owner may not be reachable

Fierce competition, many investors are trying to buy these type foreclosures

Time to research documents and court filings

Undisclosed or underlying liens against the property

Auction Phase

Possibly the most profitable stage of a foreclosure. Auctioned properties usually offer the best potential profit when buying foreclosures. An auctioned property is sold during a public auction to the highest bidder. If you have done you, research these types of properties are sometimes sold way under market value.

Pros

Greater discounts can be as high as 35-50%

Great ROI, return on investment

Greater potential profit

Cons

Property inspection is generally not available

Postponed auctions mean valuable time lost and research wasted

Large down payments that must be paid at the time of auction

Incomplete research can cost you a lot of money

You may not win the auction at all

REO Phase

An REO occurs when the lender retains the property after the auction phase. If the bids are not high, enough during the auto the lender will bid on the property to seize control and resell it themselves. In most case, the property has no value to the lender until the house sells; in this case, the lender is usually motivated to sell the property fast.

Pros

Discounts of 5-18%

Clear title, free of all liens

Back taxes are up to date

Lenders may do the repairs, or offer additional discounts

Cons

Low ROI, return on investment

Research must be very through

Potential for loss in the end

When investing in real estate, especially in foreclosures there is great risk involved. While the potential to make a substantial profit in foreclosures you need to make sure that, you do your research and fully understand what your risks are. Properties that offer the greatest profit potential are often times the risky investments.

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