Is Buying Pre-foreclosure A Good Idea For First Time Homebuyers?
Professional real estate investors know that buying foreclosure real estate is difficult, frustrating and at best a complete waste of time. That is, it can be all of those things to an unsavvy new investor straight out of a “Make Big Money In Foreclosure Real Estate” seminar. But for the experienced investor, foreclosure real estate really can be a satisfying source of good income – and a rare opportunity for first time home buyers.
The Right Type Of Person
Most home buyers searching for a personal residence do not even look at foreclosure property because of the imagined problems. But they should. It is puzzling in a way. There are many people starting out with little money or credit who buy a “fixer” and spend considerable time and money fixing it up while they are living in it. They then turn around and sell it to move up to a more expensive fixer and start the process all over again.
If this describes you, you should really think about a foreclosure property. But you need to equip yourself with a little knowledge first so you don’t suffer the pain and disappointment common to so many attempting this route. Let’s start with the basics.
Foreclosure or Pre-foreclosure
The term “foreclosure” makes most people think of a scene in which a home is auctioned off on the court house steps and you bid against other interested investors. You do not want to do this. It is virtually impossible to gain the edge on the experienced bidders who have done this many times. What you need is a “pre-foreclosure” property.
A pre-foreclosure home is one on which the bank has begun foreclosure because the owner has missed several mortgage payments but it has not yet reached the auction sale stage. A key to successful pre-foreclosure investing is to gain the trust of the homeowner so that you can gather the information you need and move quickly to put together a deal that everyone will agree to.
Pre-foreclosure Properties Can Be Profitable
Done right, purchasing a pre-foreclosure property can be a profitable experience even for a first time home buyer. You have sufficient time to research them because you can purchase them up until the day of the foreclosure auction. When you purchase a pre-foreclosure, you help save the home owner’s credit by avoiding a foreclosure auction. You should remember this. You are not taking advantage of the homeowner in distress. You are helping him/her to avoid a current and many future credit related problems. Pre-foreclosure investing makes everyone involved a winner.
Lenders typically don’t bother explaining borrowers’ rights and options. They just want to collect their money. You have the opportunity to help homeowners avoid foreclosure, salvage their credit rating, and get on with their lives. And you can gain a home of your own – or resell it and make money by doing it.
You can end up saving tens of thousands of dollars on the purchase of your home by buying a pre-foreclosure property. It can be your opportunity to buy low and sell high, quickly maximizing your equity.
Repairs May Be Needed
It is not all gravy. Many of the best opportunities you uncover will need a lot of tender loving care to get them back in shape. They may need carpeting, up-dated or repaired appliances, electrical or plumbing. Roofs may need to be replaced. Most of them will probably need painting and some landscaping work. If a person is short of money and facing foreclosure, these things simply do not get any attention.
Summary
Buying a pre-foreclosure property can benefit both yourself and the current home owner. It is not always easy but it can be very rewarding. Unless you are an experienced handyman yourself, you need to get an estimate from qualified professionals on what it would take to bring the home up to standard. Don’t rush or get discouraged. Buying a pre-foreclosure home gives you plenty of time to make unrushed decisions.
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