According to recent research conducted by the Center for Responsible Lending, 624,000 mortgages will end in foreclosure over the next few years. This is a staggering number. It is a result of the 3.2 million consumers who purchased sub-prime mortgages in the early 2000's.
Investing in foreclosure properties can be a tricky business, and like any investment requires a great deal of knowledge before laying down the large sums of money required. Few areas of real estate are as regulated as foreclosure properties.
This article will give a brief overview of how to purchase a foreclosed home. After reading this article you will be able to confidently move forward in your investment choices when considering foreclosed homes as a real estate investment.
One of the most commonly asked questions in any type of real estate investment is, "How do I estimate the real value of the potential investment property?" There are basically two different ways that investors can accurately determine the true value of the real estate property that they are looking to invest in.
The first is called the "comparables approach". The "comparables approach" is when the investor takes a look at similar properties that have sold recently and compares their prices to the current asking price of the investment. The investor is able to gauge what they might receive if they need to quickly flip the property.
The second approach, or "capitalized income approach", uses the income from rental property in the surrounding area as a benchmark for pricing the property. For example, if 3 bedroom houses for rent around the block are receiving $1000 a month in rent, the potential investor could safely assume that they might be able to get $1000 a month in rental revenues out of the property they are considering.
One of the keys to purchasing foreclosure homes as investment properties is to actually try and get in before the foreclosure occurs. In other words, don't wait for the house to go into foreclosure. Your opportunity may have already passed when real estate companies or the government gets a hold of a property and preemptively increase the price.
Learn how to get access to local real estate records. You will be able to access and search for liens on property. By having access to the liens you can quickly reject properties with too much debt or too many liens.
You may also contact local title insurance companies for the cheapest rates on title commitments. Making sure that the title is free and clear when purchasing a foreclosed home means that you can avoid a lot of legal headaches in the future.
Beware that in some states homeowners who are about to go into foreclosure may legally be able to cancel any contract that they have with you if they are able to make payments on the house. Failing to follow these requirements not only carries with it heavy financial penalties, but in some cases you could go to jail.
If you are able to find properties that are nearing foreclosure but have not yet gone into foreclosure completely, the best tactic is to try and assumed the loan. Ask for a waiver of the assumption fee and the closing costs and you can save yourself a lot of money.
By assuming the loan, you are simply taking over the payments in the eyes of the bank. In the eyes of the home owner, you are freeing them from a potential foreclosure on their credit report. For many in this situation, both banks and homeowners, this is a win-win situation.
Following these simple steps will allow you to move forward in investing in foreclosed homes.