How you Can Profit From Pre-foreclosures in Todays Market

By: Robert Lam

One of the most profitable investment opportunities for property investors is buying pre-foreclosure properties.

Pre-foreclosure properties become available where a home owner has fallen behind in their home repayments and the bank or other lender has issued a formal demand for the repayment of all outstanding amounts by a given date. The defaulting home owner is often more likely to sell their home to a property investor than let the foreclosure process continue. They may believe they can get a higher price than if the home is foreclosed at a public auction, and will probably welcome the chance to avoid the stress of foreclosure proceedings.

There are, of course, a few steps involved in buying and profiting from a property in pre-foreclosure... and in this short article I'll outline the process for finding and negotiating to buy a pre-foreclosed home.

The first step is to find the right opportunity. Whenever a bank issues a notice of default to a mortgagor, this notice becomes a matter of public record, registered with the county recorder's Office in the county where the property is located. This information is also readily available on the Internet at various foreclosure listing sites.

The next step is to contact the owner of the property. Be upfront and open, and provide whatever information you have that proves you're legitimate. The owner will likely want some reassurance that you're an honest business person - not a scam artist full of empty promises.

If you've garnered the home owner's trust, it's time to value the property--which is the third step. You can engage or professional valuer or ask a real estate agent to appraise the value of the property. As a property investor, however, it's a good idea to become adept at valuing properties yourself.

Some of the key things to keep in mind are what similar properties in the same area are selling for on the one hand... and what similar foreclosures in the same area are going for on the other. The aim is to get a solid grasp of what the property is worth, while also getting an idea of what to offer, taking into account the state of the property, as well as any liens or other liabilities attached to the home (e.g. utility bills, property taxes, etc).

The fourth step is to work out your monetization strategy. It's one thing to buy a property at a discount to its true market value... it's another thing to realize that value. Are you aiming to flip the property or rent it out? What is your timeframe? These are the questions to think about before you make an offer.

The fifth step is to make an offer. There may be some negotiating here, but in any case, you must get agreement to the deal before approaching the bank. You also need to comply with any local state laws that restrict what you can offer.

In general, an owner will favor an offer that gives them, at most, a profit, and at least, no more debt. Meanwhile, for the deal to appeal to the bank, the offer must be at a price that yields a smaller loss to the bank than if they go through with the foreclosure process.

The sixth and final step in the pre-foreclosure process is to pay for the home. This is a matter of organizing your own financing - whether it's from your own lenders, other investors, or even obtaining a loan from the current lender.

So there you have the main steps in buying a home in pre-foreclosure. As mentioned, pre-foreclosure investing can be very lucrative, but you do need to comply with any applicable laws and have a solid monetization strategy in place.

Continue to learn everything you can about the pre-foreclosure process and, most importantly, take action on what you learn. For more information, see resource box below.

Foreclosures
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