Now is the perfect time to invest in preforeclosures. With the sub prime crisis raging on, there are a lot of properties coming into the market, where the owner was unable to make his mortgage payments on time. Banks then auction these types of properties. Preforeclosure is when you can purchase a property before it reaches the auction block.
During this preforeclosure period, you just might be able to get a good bargain, and you could then either sell it at a higher price or could rent it out thereby creating a fixed source of income. You can search for these properties by either selecting notices, which are printed by banks in newspapers or you could contact the local government office or courts from where these notices are issued. Banks and other financial institutions normally want to avoid getting saddled with properties and hence are happy if somebody else starts paying off the stuck mortgage.
So, it does not matter to them if you are paying off that loan as long as you are consistent in your payments. The owner of the property is also stuck and so, he too would be happy to transfer the property to you and ease himself out of the financial mess in which he is stuck. On an average, you should be able to make around 20% to 30% profit out of the deal. However, competition has increased now, and you might have to compromise on that figure sometimes to get a deal. Also, find out if there is any other lien attached to that property because, they too will have to be involved in the deal.
You could also take the help of a real estate broker who is experienced in such matters. He would have the knowledge of the current market rates of that neighborhood and could guide you on how much less to offer to the owner of the property. His contacts could also help you in looking at a wide range of properties in the preforeclosure market. One more advantage, which you will have, is that you will not have to run around to arrange for a loan on that property. You will just have to take over the existing loan and continue paying the installments from where the previous owner left off. You will still remain eligible for all tax benefits and depreciation on that property.
Once you get enough experience in purchasing preclosure properties, you can then start searching and negotiating on your own. Slowly, you will be able to increase your profit margin on every deal you make. Buying during the foreclosure period is better because once that property is on the auction block, then it is very difficult to make fast decisions during the actual auction regarding the price to be offered.
So, do not feel guilty of stepping in to buy a property from someone who is hard on luck, but rather think of it as stepping in to help out someone who needs help. Making a profit out of that move is the icing on the preforeclosure cake.
