Mike Kar asked:


Most of us think of properties that have gone into foreclosure as old, beat up places that no one would want to buy.

However, the truth is that in today's unstable economy, more and more gems are going into bank foreclosure simply because the owners of these properties have fallen on hard times. While mortgage lenders work with homeowners for a while to avoid the foreclosure process, eventually those who cannot pay their home loans lose their homes.

Many people realize that they can benefit from foreclosures by buying REO foreclosure properties. REO stands for real estate owned, and these properties are usually owned by the lender that held the mortgages.

When a homeowner cannot pay the mortgage back, the bank will repossess the property, evict the homeowner, and then look to quickly unload the home before losing any more money. Because the lenders goal is to get rid of the property without losing any money, rather than make a huge profit off of it, those who purchase these REO foreclosure properties can often turn them around and sell them for a decent profit.

Is there risk involved with this process? As with any investment opportunity, there is. However, because there is almost always a demand for homes, buying bank foreclosure properties is a fairly solid investment. The trick to making it work is knowing what type of home to buy. Not all foreclosures are going to be easily sold.

If you are stuck sitting on a property for several months, paying a mortgage payment each month, you may lose money on the deal. Certainly you will put yourself in a financial bind for those few months you are holding the property. To successfully invest in bank foreclosures, you must be able to recognize the types of properties that will resell well.

Also, the amount that of equity in the mortgage is important when you are investing in foreclosures. Remember, the banks goal is to avoid losing money on the deal, not making a huge amount of money. Therefore, the bank is going to offer the property for sale at a price that is close to the amount still owed on the mortgage.

For example, if you are interested in purchasing a property that you think will bring $250,000 on the market, but the previous homeowner still owes $230,000 on the mortgage, you are not going to get the home for much less than $250,000. You will not make much money investing in this piece of real estate. However, if you can find a home worth $250,000 that is for sale for $200,000, you will make a nice profit from this sale.

In order to make bank foreclosure investing work, you must know the real estate market in your area and be able to tell the approximate value of a home.

While there is tremendous potential for those interested in investing in REO foreclosure properties, there is also a tremendous amount of competition in this field. Many investors who have a decent amount of capital to use in their investments already have relationships with mortgage lenders.

This means that the lenders alert them to properties before they hit the open market. For this reason, the average real estate investor needs to find these properties before they go into bank foreclosure in order to make a profit. These homes are called pre-foreclosure homes.

The biggest reason that pre-foreclosure homes are the best investment for the new investor is because there is less competition surrounding these homes. Also, the sellers and the bank are generally quite motivated, because selling the home before it goes into bank foreclosure saves everyone both time and money.

Investors are willing to give you their money to work with to purchase these homes because they are usually available for a deep discount.



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Hunter Craig asked:


There are an incredible number of scams that promise you can make huge returns on foreclosure and pre-foreclosure investing without using a cent of your own money. They take the form of supposed "investment clubs," expensive how-to courses, books and e-books.

Unfortunately, the majority of these programs are about making someone else rich, not you. Though it would be great to have confidence that most advertisements involved legitimate, helpful products and services, the reality of human nature forces us to exert caution and weigh any business or investment opportunity before jumping in headlong.

Despite the risks, there are ways to make money on foreclosure investing without risking a large chunk of your own nest-egg, and here's how.

1. Buy a Property with Tenants

A foreclosure or pre-foreclosure property that already has tenants allows you to claim that rental income on your mortgage application. So, if you're applying to a lender for a mortgage loan, that rent will be seen as income and property, both reducing your borrowing rate and increasing your eligibility for a higher mortgage.

You will have to pay closing costs and a down payment, but the rental income will allow you to pay the mortgage until you're able to sell the property for a profit.

2. Find Tenants for the Property

If you have the cash to put a down payment on a foreclosure property and carry it for a few months while you locate good tenants, the potential rental income could pay the mortgage on the property while you wait for the property to appreciate in value. At that time, you can sell it for a profit, all without having to carry the lending costs associated with it.

3. Buying Direct from the Owner

Buying direct from an owner is an option that allows you to take over the deed and the mortgage of the property while retaining the existing owners as tenants. In turn, the owners may engage in a buy-back or rent-to-own program or simply continue as tenants until you decide to sell the home. If your credit is good, you can renegotiate the financing to obtain a lower rate.

Buy-direct and rent-to-own programs are legally tricky, meaning you'll have to invest in quality legal advice, contract preparation and real estate consulting, but you can save big on down payments, purchasing costs and interest.

4. Don't Get Involved in Investment Clubs

Unless you're dealing with trusted family members and very close friends, don't involve yourself in a foreclosure investment club. These supposed money-making ventures seek to pull together small investments to buy foreclosure and pre-foreclosure properties, sell them at a profit and then send the returns to the original investors.

Unfortunately, properties are often never bought, returns are frequently deflated and profits can be heavily skimmed.

If you're considering an investment club strategy, try taking it on with a group of close and well-known friends, and do so with a transparent structure and well-written legal contracts.

Foreclosure investing can be a lucrative business opportunity for the savvy investor who is will to take sufficient time to learn the details and "practice" them before placing huge sums of money at risk and simply hoping for the best.



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