Foreclosed Homes: Investing in Foreclosed Homes

Investing in Foreclosed Homes

Posted on February 19th, 2008 by saman

The real estate industry is a profitable one for investors. There are numerous real estate programs that teach you how to earn money in the real estate trade for little or no money down. Foreclosed homes are a great real estate investments and can bring a property owner good money. However, if you simply looking for your first home foreclosed homes offer more than just an extra income.

Foreclosure happens when a bank or creditor that has loaned money to a person in order to purchase a property and that person does not pay the loan back. If a bank or creditor cannot retrieve their money, they will require that the property be sold in order to recover their money including interest that is unpaid. In the case of a distressed property that is being foreclosed on, the lender will take possession of the property and will quickly make the repairs to get the home in “market condition”. Once the home is in better condition and placed back on the market, this is the best time to place an offer on a foreclosed property. The difficult part of finding foreclosed and distressed home is locating the homes and the lenders who own them.

There are two types of foreclosures which are foreclosure by judicial sale and foreclosure by power of sale. Foreclosure by judicial sale involves selling a property under the court’s supervision. When the property is sold, the proceeds go to satisfy the debt, to other lien holders and to the lender. This is a legal proceeding. Therefore all parties are notified of the process, pleadings are heard and ultimately a judicial decision is reached.

A foreclosure by power of sale is the sale of a property by the one who holds the mortgage. This is the fastest and easiest way to foreclose on a property.

For first home buyers, foreclosures are good investments for the future. If a home buyer is willing to settle for a not so “dreamy”, dream home, the buyer can develop what is called “sweat equity”. Sweat equity, simply put, is when a home buyer cleans up and repairs a distressed property.

To develop sweat equity, the first thing is to evaluate the needed repairs. Be sure that you are able to complete these repairs. The next thing to consider is the landscaping. In distressed properties, the greenery will usually need a lot of maintenance. The good thing is that this problem is easily fixed and the cost is usually low.

Next is the exterior. In many neighborhoods, there are homes with peeling and fading paint. There may even be homes where the paint jobs are merely bad. Bad paint does not necessarily mean that the home is in poor condition but it is something to pay attention to. Housing developments are usually built in groups of four or six homes. If you see a home that looks bad, look for a similar home nearby that does not look as bad. This is the kind of home that can help a home owner develop sweat equity.

Keep in mind that Real Estate agents can be very helpful in looking for distressed homes and homes in default. It is important to take some time and think about what you want in an agent. You will find that some real estate agents and offices work with lenders to help sell foreclosed homes.

It is important to spend time investigating real estate agents and lenders. There are several on-line resources and listings available to help you.