If you've been watching the news, you know that more and more homes are going into foreclosure. What's left out of many foreclosure news stories is that foreclosed properties can be great opportunities for investors if they're willing to put some time and money into turning them around.
Foreclosure home investors typically buy the home at a discount and make any necessary improvements. Then, they can live in the home, sell it for a profit or rent it out and enjoy a steady monthly cash flow. In this way, many investors have turned good credit and good timing into hundreds of thousands of dollars in profit. Some have even turned foreclosure investments into full-fledged careers.
To understand the reason foreclosed homes can be such great investments, it helps to understand how they work.
Almost all homebuyers must take out loans from a bank -- mortgages -- to finance their purchases. This means that technically, the banks own part of the properties until the homeowners finish paying off the mortgages.
Unfortunately, because of bad circumstances or bad investing, some homeowners aren't able to keep up with their mortgage payments. When homeowners are far enough behind on these payments, the banks will foreclose on the mortgages (repossess the properties).
Most banks and government agencies don't want to own homes, because they're not in the business of maintaining and selling real estate. They want to sell the properties and make back their money as quickly as possible. That means that foreclosed homes are often sold for below their market value, creating amazing opportunities for smart investors.
In fact, you may not even need a down payment to buy many foreclosed homes. If you understand the value of real estate in your area, know where to look for deals and are willing to invest some time and money, you can make tens or hundreds of thousands of dollars in profit from buying and reselling a foreclosed home.
As with all investments, however, there are risks that you need to know about so you can minimize them going forward.
The real estate market and mortgage interest rates can fluctuate. More immediately for many investors, the original owners of foreclosed homes may stop maintaining or even harm the properties because they know they'll have to give them up. This means you may have to sink lots of time or money into cleanup and renovations to get them ready for sale or occupants.
And of course, you'll need to understand mortgages, being a landlord, insurance, property taxes and other complicated subjects. But if you know you're up to it, foreclosure investment can be a great way to supplement or even replace a day job.
To get started, you need two basics: A list of foreclosed homes for sale and enough money or credit to buy one. And before you know how much you'll need to spend, of course, you'll need to know the prices of what's available.
Once you've found properties you like, you should learn as much about them as you can, touring the homes if possible. Look beyond cosmetic flaws for well-built homes in good neighborhoods. If you're interested in an REO home, you can often get financing through the company selling it.
Above all, be aggressive when you make your offer because owners of foreclosed homes are "motivated sellers" - they want to get this sale over with. With a little luck and a lot of research, you can turn that strong motivation into a strong profit for you.
Learn how to buy a foreclosed home so you don't get stuck in a real estate nightmare. Foreclosed homes are tempting because the prices are low, but you must be careful.
How long does foreclosure take? From the moment when you miss your first payment to when your house is sold, the process can take a while.