Pros and Cons of Buying Pre-Foreclosures

Pre-foreclosures are an excellent opportunity for investors to buy a home at a deeply discounted price. When investing in a pre-foreclosure home, you will work directly with the homeowner. You not only save the homeowners from being foreclosed on and hurting their credit, but you also get a great invest property while maintaining the property's value.

A pre-foreclosure is a home that is in the process of being foreclosed on or being taken back by the bank. The bank begins foreclose proceedings due to the fact the homeowner is behind on payments. After the bank has initiated a foreclosure on a particular piece of property, the house can be purchased up to the day of the actual foreclosure auction.

Since it is no secret just how profitable purchasing a pre-foreclosure home can be, expect that there will be some competition. Searching for homes that are in pre-foreclosure can be extremely time consuming. If there are liens currently on the property, you will need to negotiate these before purchasing the property.

When looking to purchase a pre-foreclosure home, the first step is to actually locate a homeowner that is in default of their loan. You can access records and notices through local newspapers that generally advertise foreclosure notices, through a foreclosure service and through the county courthouse.

After you have found a piece of property that is in foreclosure, the next step is evaluating the property and determining its potential. When going into this, you will already know that default amount. However, you must then try to determine the property's market value. In order to determine the gross equity of the property, deduct the default amount from the market value of the property. If there is only a small difference or none at all, you will want to pick another property for investing. If there is a large enough difference, then there is potential there to make a sizeable profit on the property.

Contacting the actual homeowner may be easier said than done. Chances are the homeowner is being inundated with phone calls and letters from bill collectors, creditors and possibly even from attorneys Since the only possible means of contacting the homeowner is through mail, in person or by phone, chances are you will have some difficulty connecting with the homeowner.

When looking to make a connection with the homeowner, begin by sending him or her a letter. In your letter, explain that you are a private investor who is looking to purchase property in that part of town. Inform the homeowner that you could possibly help him or her with the financial troubles they have encountered.

Showing compassion for the homeowner's unfortunate circumstances may help you with your desire to purchase the property. Let the homeowner know that you have the potential to help stop the foreclosure, save his or her credit rating, as well as supply them with cash to help in paying their bills and/or possibly relocating to a different home or area.
When looking to purchase a pre-foreclosure home, be sure that you act in a professional manner in all of your correspondence. Give the homeowner several weeks to contact you. If after that time you still have not heard from him or her, try sending a follow letter.
If possible, you can also follow up with phone calls. Always be extremely courteous and no matter what, never be pushy. If you are able to connect with the homeowner over the phone and have determined that you can indeed help out, then you can ask to set up a face-to-face meeting.
After the homeowner has agreed to meet with you, it is important to get a clear assessment of his or her situation. For instance, does the homeowner simply need cash? Or are they waiting for someone to bail them out? If they don't get exactly what they want, are they willing to file bankruptcy? These are all important questions that need to be answered.
Take the time to review any mortgage and loan documents. Confirm the exact loan amount, as well as the monthly payments, the current interest rate and any taxes associated with the property. Check with the homeowner to see if there are any judgments or liens currently against the property.
It is important that you inspect the home before making an offer. This will allow you to estimate any repairs that need to be made. Since you are looking to make a profit on the home, you will want to make sure that any repair costs will not severely cut into your profit. After you have inspected the property and feel it is something you would like to invest in, you can then make the homeowner an offer.
When estimating the potential profit, it is important to include any and all costs associated with the home. Things you should include in your estimate are, closing costs, carrying costs for the home, repairs that need to be made, as well as if any liens need to be paid off. Keep in mind, that when it is all said and done, you want to make a profit.
Before making an offer on the home, locate a lawyer that has experience with real estate purchases. The terms and conditions of the purchase must be clearly stated in writing. This will then eliminate any confusion or possible problems that could arise later down the road. When closing on the property, ask that your lawyer be present.
At the time of closing, you will need to present all of your paperwork. If there was a lien on the property, a Release of Lien statement will need to be recorded at the closing or just before closing. If you are simply going to take over the current loan, be sure you have contacted the lender and they have stopped the foreclosure process.
If everything goes as planned, you are now the owner of an investment property. You can then begin to make any necessary repairs with the intent of quickly putting the home back on the market. The longer you hold onto the home, the more your carrying costs will be. Therefore, it is important to quickly get in and out.
As you can clearly see, there is a lot involved in buying a pre-foreclosure home. There are a lot of pros as well as some cons associated with the purchase. But in the end, if you do your homework on the property and take all of the proper measures, purchasing a pre-foreclosure home can become a great investment with the potential to make you a considerable amount of money.

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