Foreclosure Real Estate

Foreclosure or not Foreclosure real estate, that is the question!  In this adjusting market, many buyers are looking for tremendous real estate deals.  In this search for great deals, buyers have been salivating over foreclosures.While there are great deals to be had in foreclosures, more times than not, the deals are not as sweet.  Let’s look at what a foreclosure is: A foreclosed real estate property is a property where the borrower failed to make any payments for approximately 6 months and the bank has filed to sell the property at the court house steps.  Once the auction date has been set, potential buyers must pay the bid amount in CASH.  Yes, in CASH.

As an example, let’s assume you are buying a foreclosed real estate property that is valued at $500,000 on the open market.  The amount owed on it is $400,000.  You must pay the entire amount of $400,000i n cash.  Now if you know for certain, you can flip this property the next day and make $100,000, then do it.  But when analyzing Foreclosure or not Foreclosure real estate, let’s see what happens if you purchase a Bank owned property.

A Bank owned property is a property which passed through the foreclosure real estate process without a buyer.  When this property comes out of foreclosure real estate, the bank gets an appraisal and is willing to sell for 10% less than the appraised value.  Even better, you do NOT have to pay cash; you can finance the property.  This gives you leverage to purchase other properties.

In Foreclosure or not Foreclosure real estate, examine the discount you are getting.  There is no hard and fast rule on percentages, but look at the leverage of your money in general.  If you are looking to flip the property, you must have some room for error.  In the $500,000 example we used, you have a 20% cushion in case the market goes down. 

Also, some foreclosures are not located in the best neighborhoods and the values are not going to rise as much as if you purchase a non-foreclosure property in a good neighborhood.  if you are strictly looking for rental property at the foreclosure sale, make sure the property is tenant friendly.  by this I mean 3 things:

1. Tenants do not like to drive long distances so make sure the schools an shopping are close.

2. Tenants like amenities offered by the community (pools, recreation)

3. Tenants want easy access to get to work (freeways, large surface streets)

In conclusion, Foreclosure or not Foreclosure real estate, is an important question that needs to be asked whenever you are considering putting in an offer.  Take time to answer this question carefully.

Happy investing.

Mike