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How to Buy Foreclosures

(An excerpt from 69 Ways To Make Money In Real Estate)

By - 2006

Yes, you might be able to show up at the auction and buy foreclosures cheap. However, there is a lot of competition in this area, and fewer great deals than "get rich" promoters say.

Some people have moral qualms about investing in foreclosures. But if you are buying them either at the foreclosure sale, or from the bank afterwards, the owner has already lost the home. (Buying before the home is foreclosed on, or "pre-foreclosure," is a whole other matter - and it is best covered as a separate topic). As I once heard a man explain to his son while I repossessed the family car, "If you can't pay for it, you don't get to keep it."

A foreclosure sale can get complicated if you don't have the cash to pay for the purchase. You will have to arrange beforehand for financing, and a pre-qualification letter from the bank won't be enough. Find out exactly what you need before you go to the sale - you may need a certified check from the bank. You don't want to lose your deposit because you can't close the purchase fast enough, or your credit line is a little short.

Can you get a great deal? Possibly, but the this has become very competitive, so don't count on getting houses at a 25% discount. Also be sure you are clear on what the law says. In some states, the owner may have the right to get the property back if she can come up with the money within a certain amount of time. That means you may not get to keep it, and it also means you may have to wait to resell it.

After the Foreclosure

It may be better to wait until all the legal stuff is past, and then buy the foreclosure property from the bank. Banks and finance companies don't want to own real estate, so they will often sell for less than market value to get rid of property fast. Sometimes they will even sell for less than what is owed on the property. The way they see it is that they are spending money on the home and losing out on potential investments every day their money is tied up in that property.

This is how my wife and I bought our home in Montana in 2002. The bank had been holding it for six months or more after foreclosing on the mortgage and taking the house, and they were ready to sell. I believe they sold it to us for less than what was owed on it, but we didn't ask. We just know that they accepted our offer of $17,500.

You can find these properties listed with real estate brokers, but if you want to get the jump on the competition, start calling the banks in the area to see what they have in their REO (real estate owned) portfolios. They save the commission if they sell it themselves, so you may get a decent price. Just be aware that it is typical for the banks to sell property "as-is".

Banks generally don't want to fix anything, and may not even know what condition a house is in.

There will be a lot foreclosure homes in the future. Mortgages are being foreclosed on at a record rate every year now. If you want to take advantage of this trend, get to know your bankers, and ask about how to buy their foreclosures.

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Houses Under Fifty Thousand | How to Buy Foreclosures