Foreclosure is a process in which a piece of real estate becomes the property of a lending institution due to the legal owner's inability to make scheduled payments on the mortgage or deed of trust.
Typically, the lender files a notice of default after a homeowner fails to make his or her mortgage payments for several months. If the loan is not reinstated, the lender moves to foreclose. As a result, the lender becomes the new legal owner of the property and has the right to resell the property and recover any outstanding loan balances in addition to foreclosure expenses.
The foreclosure process consists of three stages: pre-foreclosure, which begins the redemption period; foreclosure, which is when the home is sold at a public auction; and post-foreclosure, which is when the property reverts back to the lender if it fails to sell at the public auction. Although each stage offers bargain-buying opportunities, the pre-foreclosure stage is considered by many real estate investors to be the most promising time to purchase during the foreclosure process.
Investing in pre-foreclosures means you will be acquiring property any time before the scheduled public auction. As the investor, you will be buying the property directly from the owner. The earlier you contact a homeowner in pre-foreclosure, the more time you will have to make a connection, structure a deal and purchase the property.
There is a common misconception that real estate investors purchasing homes from owners facing foreclosure are taking advantage of the homeowner's misfortune. This is simply not true. A Notice of Default is filed only when a borrower (property owner) has broken the terms agreed upon with lender at the inception of the loan in default. This breech gives the lender every right to protect its financial interests. Therefore, an experienced real estate investor becomes the problem solver by finding a win-win solution that will help the homeowner get out of default.
Property owners facing foreclosure are typically scared or in denial. Many of them hope some miracle will happen that will make their ordeal simply go away. Doing nothing will certainly ensure a homeowner's foreclosure, loss of home, loss of equity and credit rating damage for an entire decade.
When dealing with an owner in pre-foreclosure, talk to them as soon as possible. It is vital to explain the following three benefits of avoiding foreclosure:
1. Protects their credit
By working with an investor, homeowners may be able to avoid foreclosure and begin rebuilding credit. Even if a homeowner endures the process of losing his or her home, the repercussions of a foreclosure on a credit report are far reaching. A poor credit rating affects everything from buying a car to renting a home. With certain businesses, credit is even a factor in employment. Investors often help homeowners protect credit.
2. Make a profit
While it is true that real estate investors purchase at a discount, a homeowner facing default may still be able to recover some of their equity and walk away with profit.
3. Get a fresh start
Stopping the foreclosure allows homeowners to breathe a sigh of relief. As the pain and pressure of the foreclosure lifts, they find it easier to move on and begin rebuilding their life.
Buying in the pre-foreclosure stage can be the most lucrative slice of a real estate investor's business. Once rapport and trust have been established, a professional real estate investor can determine whether the sale of a property would truly benefit everybody involved.
There are various ways to profit while helping people find viable solutions for their defaults. The following three are most common:
1. Purchase at a discount
Real estate investors are not likely to make a profit by purchasing at full market value. As an investor, it is essential to inform potential sellers that you earn your living from your profits. Therefore, you must buy for less than retail price while taking into account acquisition, sales and holding costs and any necessary repairs. A discount of twenty to thirty percent of full market value is common practice among real estate investors.
2. Buy property "subject to" the existing loan
There are widely spread rumors that it is illegal to purchase property that involves taking over an existing mortgage. This is completely false. While assumable loans are practically extinct, it is perfectly legal to purchase property subject to an existing loan. It is important to be aware of the "due on sale" clause stating the existing lender can call the loan due upon the transfer of title. In other words, the lender has the right to demand full payment of the outstanding loan balance at the time of transfer. In practice, lenders would rather receive their monthly payments than call the loan. Purchasing property subject to the existing financing means a smaller out-of-pocket investment for the real estate investor.
3. Create instant equity utilizing a Short Sale
Structuring a Short Sale can prove profitable when dealing with a homeowner facing foreclosure whose property is equity deficient. In this market, troubled lenders would rather discount their mortgages than increase their already mounting inventory of foreclosed properties. The type of discount you create will largely depend on the quality of your Short Sale package combined with the quality of your negotiating skills.
Real estate investors prevent a large number of foreclosures every year across the country. There are many ways for investors to make a profit while helping people move on with their lives.
Undoubtedly, the money is there to be made. Pre-foreclosures are a fabulous way to make it.
About the Author
Brenda Coté is a Real Estate Investor, Real Estate and Mortgage Broker, Mentor, and Wealth Coach. At Transforming Lives, Creating Wealth, Brenda employs a "whole person" approach to support female Real Estate Investors succeed in business and life. To download Brenda's FREE audio workshop, "The Seven Elements of a Wealth-Creation Mindset" please go to: http://www.TransformingLivesCreatingWealth.com
For FREE information on how to buy a home when you have bad credit, go to http://I-can-buy.com now!
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Investment Properties 101
Late night TV is convinced that investing in real estate is the best way to make a million. Many investors are looking at big returns with no money down. While that is unlikely, it is possible to make money in real estate.
But you have to know that this is simply an investment, and with investments come risk. If you don't know what you are doing, you could loose a lot.
Investing in real estate takes forethought and preparation. It could be broken into two parts: choosing your investment and exiting your investment.
Choosing your investment
Beginning investors should start with a small project. For example, Justin has been involved in real estate for over ten years now, and has invested in many commercial and residential properties. He has found that the key to his investments are to purchase in a good location.
Justin started with a simple duplex, which he later refinanced to buy a four-plex. He painted and made a few changes to the four-plex, and sold it for a seven-plex. He also bought another four-plex. He renovated the units and made minor repairs and sold it for a decent return.
He found that fixer-uppers really work well if you live nearby and can do most of the work yourself. This cuts your expenses. Justin learned with each investment and learned to be conservative. Don't let the dollar signs rush you into anything.
Whether you are looking to buy a house, a duplex or an apartment complex, you need to carefully review the property's economics. Are the rents you plan to charge reasonable? Are your expenses correct? Can you live with the cost of the mortgage? What happens when a unit is empty? Do you still have enough income?
You may not want to be a landlord and prefer to buy a house, fix it and flip it. While you can make a lot of money if you are wise, there are still a lot of issues involved. You have to look at the neighborhood, the market and the budget you have for repairs. Do you have enough money to pay the mortgage if the property does not sell quickly? What if you have to go over budget on necessary repairs? What if things are uncovered that devalue the home? What will you do then?
Large cities tend to be better investment areas than small towns because there are more tenants and buyers. Communities on freeways are attractive as investments due to the access to metro areas. Vacation areas and towns are also fairly stable.
Exiting your investment
Things happen. The economy, interest rates, job opportunities and construction trend impact every real estate investor. You need to watch the trends and keep in touch with local brokers, appraisers, investors and real estate attorneys.
No matter what you are investing in, you need an exit strategy. You need to know when you will sell, if you will take money and pay taxes or complete an IRS 1031 tax deferred exchange. Does your plan include enough money for your retirement? Will you pay off the property or refinance it and use the proceeds to buy another investment? What if the value of the home drops?
A weak economy is something you should watch. You need to know if a depressed market will pull out of it or last. This tells you when to exit. If you can't find buyers when you are ready to sell, what will you do? Can you restructure your mortgage or have it assumed by a buyer. Check out what loan assumption costs are and if financing terms change with an assumption. You should research your financing options before you make any decisions, paying attention to more than just interest rates.
You need to think well into the future. Plan for the best and the worst. If you invest with a friend, what will happen if they need to pull out? Do you have enough money to handle emergencies or will you need to liquidate the real estate?
Your exit strategy is vital in making your decisions for the future. Plan with your goals in mind. The key is to take your time, pick the right property and live with what happens. In the worst case, the market goes away from where you expect and the value of the home goes down -- at least you can have the tenants pay for the mortgage.
Copyright 2006 #1 Loans USA
By Martin Lukac
Martin Lukac, represents, #1 Loans USA(http://www.1LoansUSA.com), a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more: info@1LoansUSA.com
For FREE information on how to buy a home when you have bad credit, go to http://I-can-buy.com now.
Read more on this article...
But you have to know that this is simply an investment, and with investments come risk. If you don't know what you are doing, you could loose a lot.
Investing in real estate takes forethought and preparation. It could be broken into two parts: choosing your investment and exiting your investment.
Choosing your investment
Beginning investors should start with a small project. For example, Justin has been involved in real estate for over ten years now, and has invested in many commercial and residential properties. He has found that the key to his investments are to purchase in a good location.
Justin started with a simple duplex, which he later refinanced to buy a four-plex. He painted and made a few changes to the four-plex, and sold it for a seven-plex. He also bought another four-plex. He renovated the units and made minor repairs and sold it for a decent return.
He found that fixer-uppers really work well if you live nearby and can do most of the work yourself. This cuts your expenses. Justin learned with each investment and learned to be conservative. Don't let the dollar signs rush you into anything.
Whether you are looking to buy a house, a duplex or an apartment complex, you need to carefully review the property's economics. Are the rents you plan to charge reasonable? Are your expenses correct? Can you live with the cost of the mortgage? What happens when a unit is empty? Do you still have enough income?
You may not want to be a landlord and prefer to buy a house, fix it and flip it. While you can make a lot of money if you are wise, there are still a lot of issues involved. You have to look at the neighborhood, the market and the budget you have for repairs. Do you have enough money to pay the mortgage if the property does not sell quickly? What if you have to go over budget on necessary repairs? What if things are uncovered that devalue the home? What will you do then?
Large cities tend to be better investment areas than small towns because there are more tenants and buyers. Communities on freeways are attractive as investments due to the access to metro areas. Vacation areas and towns are also fairly stable.
Exiting your investment
Things happen. The economy, interest rates, job opportunities and construction trend impact every real estate investor. You need to watch the trends and keep in touch with local brokers, appraisers, investors and real estate attorneys.
No matter what you are investing in, you need an exit strategy. You need to know when you will sell, if you will take money and pay taxes or complete an IRS 1031 tax deferred exchange. Does your plan include enough money for your retirement? Will you pay off the property or refinance it and use the proceeds to buy another investment? What if the value of the home drops?
A weak economy is something you should watch. You need to know if a depressed market will pull out of it or last. This tells you when to exit. If you can't find buyers when you are ready to sell, what will you do? Can you restructure your mortgage or have it assumed by a buyer. Check out what loan assumption costs are and if financing terms change with an assumption. You should research your financing options before you make any decisions, paying attention to more than just interest rates.
You need to think well into the future. Plan for the best and the worst. If you invest with a friend, what will happen if they need to pull out? Do you have enough money to handle emergencies or will you need to liquidate the real estate?
Your exit strategy is vital in making your decisions for the future. Plan with your goals in mind. The key is to take your time, pick the right property and live with what happens. In the worst case, the market goes away from where you expect and the value of the home goes down -- at least you can have the tenants pay for the mortgage.
Copyright 2006 #1 Loans USA
By Martin Lukac
Martin Lukac, represents, #1 Loans USA(http://www.1LoansUSA.com), a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more: info@1LoansUSA.com
For FREE information on how to buy a home when you have bad credit, go to http://I-can-buy.com now.
Read more on this article...
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