Buying Pre-Foreclosure Properties Can be a Good Real Estate Investing Strategy

by David Gerlitz on May 10, 2011

Buying pre-foreclosure properties can be one of the best ways to jump into real estate investing. It is a strategy and a niche market ripe with opportunity.

Buying Pre-Foreclosure Properties Can be a Good Real Estate Investing StrategyLet us start with what a pre-foreclosure property is; it is a property on which the home owners in default are no longer making payments to the bank. When looking at one of these properties for investing, you negotiate with the seller and the bank, no one is making payments, and you have an advantage. Holding costs on pre-foreclosure properties are not an issue.

Sellers in pre-foreclosure are usually very motivated. They just want out from under the stress and hassle of owning the property, talking with bank collectors and generally worrying every day that the sheriff is going to come and lock them out of their house. The delta between the homeowners and the bank’s outstanding loan amount is where you may have plenty of room to negotiate. It is not difficult to create unusually large equity spreads. Banks do not want to take back a huge number of foreclosed properties. By requesting the lender discount what is owed on their payoff, large spreads of equity can be created on properties that are maxed out with loans. One note is that this can not be done on loans that are not in default.

Big discounts can be negotiated because banks are under pressure to liquidate bad loans rather than take the property back. Study the circumstances that cause lenders to discount, and you can get larger discounts.

Buying houses in pre-foreclosure allows you to simply take over the existing financing already in place. No qualifying needed. You can take title to the property in a land trust, begin making payments on the existing mortgage, and still get all the tax advantages, appreciation, and depreciation without being personally liable for the mortgage and the property.

Buying pre-foreclosure properties can be a rewarding real estate niche market that also can help people in dire financial situations. It is a good investment for the future.

At Investment Property Colorado, we have the experience and know-how on lenders and great investment properties. Call us at 720-306-8017 today!

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