Foreclosure Investing: What Is It And How Does It Work?

With the housing market in a downturn and hundreds, if not
thousands, of homes going into foreclosure, people are beginning
to talk more about and pursue foreclosure investing. But, what
is it and how does it work? Well, for answers to your questions
on foreclosure investing, keep reading.

What is foreclosure?

Foreclosure is a process that is initiated when a homeowner is
not able to pay the mortgage on their property or sell the home
quickly or efficiently enough. The financial burden is no longer
manageable and the house then becomes the property of the lender
or bank. Typically, the property is later sold at a below-market
prices in order to settle the outstanding debt.

So, what is foreclosure investing?

The term "foreclosure investing" refers to the practice of
buying houses that have gone into or are about to go into
foreclosure and then selling them on the traditional real estate
market. Typically, these homes are sold at auction or at a
reduced price, meaning investors can purchase homes for less
than their normal value and then - after doing some repairs and
sprucing up - resell the homes for a profit.

What is pre-foreclosure investing?

Pre-foreclosure investing is the practice of buying a property
before it's actually foreclosed on, but after the homeowner has
gone delinquent on their payments. In this case, the home is
purchased from the owner who can at least make enough on the
sale to cover a lot of the owed mortgage debt.

The appeal of pre-foreclosure investing is that the homeowner
does not have to go through the process of foreclosure, and the
buyer or investor is typically able to obtain the property for
less than market value since the seller is highly motivated.

Is foreclosure investing legal?

Yes, foreclosure investing is legal and done by many reputable
investors and real estate professionals. Unfortunately, there
are some unethical individuals and businesses who prey on
homeowners in trouble, claiming they can save them from
foreclosure while simultaneously stealing their homes. This
practice, however, is considered fraud and is illegal.

Does foreclosure investing work?

That depends on what kind of profitable returns you're looking
for and how fast you want to turn your property around to sell
it. Typically, the longer a property appreciates, the greater
your return will be. On the other hand, the longer a property
appreciates, the greater your carrying costs will be. By
carrying costs, we mean the expenses associated with ongoing
mortgage payments, taxes, and maintenance.

Also, depending on the location you're purchasing in and the
current real estate market in the area, you may have a hard time
selling or making the kind of profit you might otherwise
anticipate.

I've heard about foreclosure investing clubs - are they a good
idea?

Think long and hard before you hand over your money to a
stranger, or even a club of strangers. Foreclosure investment
clubs can work, but there are also a number of scams out there
that prey on potential investors. If you find one that is of
interest, investigate them and their practices thoroughly before
committing any money.

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