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Opportunities In Foreclosures

"...Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate..." -- Andrew Carnegie

What Is Distressed Property? The term "distressed" is generally used to describe property that has some type of financial burden attached to it. This can be confusing because the house doesn't make the mortgage payments, the owner does. The owner in financial trouble, ready to lose his or her property, should be the one distressed!

Distressed is also a term loosely used to indicate a run-down, broken-down, over-grown property usually in need of repair. For the purposes of this material, we use the term distressed to indicate that the property has a financial burden attached to it. This may be in foreclosure. a pre-foreclosure. a REO (bank 'real estate owned' property) or other.

Distressed property comes in many sizes, shapes and forms. It may be a tract of land that a contractor was developing for an office park. Construction loans get "called" too. not just residential home loans.

Single family homes. apartment buildings. gas stations. mansions. industrial complexes. warehouses. even vacant land are subject to the foreclosure process.

Why Buy Distressed Real Estate?

So, why buy distressed real estate? This is why!

If real estate buying and investing. or the ownership of one's home. represents the best opportunities for one to increase his personal wealth, financial security and personal well being. then buying this real estate at a substantial discount off the regular market price. would definitely be outstanding!

Remember, there are no industries, jobs or employers that can guarantee financial security for you and your family forever. Buying real estate at market prices today is not the same investment it used to be.

Buying distressed property has numerous advantages over that of buying properties at regular "retail" prices. It doesn't matter what your particular purposes for buying these properties are. Whether you are buying to won a home. intending to rent the property for monthly income. or buying and selling the property for quick profits. there is no other opportunity that will allow you this investing flexibility. like that of distressed properties. namely foreclosures.

Advantages of Buying Foreclosures

Lower Purchase Price

The first and most obvious reason to buy real estate at a discount is the cost savings.

It is true that the purchase of a home is the most expensive purchase the average person will ever make. If you would go out of your way to clip food coupons to save money on food. or shop around carefully when buying a new car. or even going to a department store on a certain "sale day" to save 20% n an article of clothing. then why wouldn't you save at least that much n your most expensive purchase ever? Of course you would.

If you are in the market for a home that typically costs $75,000. you may be able to purchase this home for $45,000 to $60,000. A home that would normally cost $125,000 may sell for $80,000 to $100,000.

Purchase price reductions of 20% - 30% are very common. Savings of 50% or more are much less frequent, sometimes even rare, but they do happen! On average, the foreclosure investor looks to buy property at 20% - 40% off market price. Some investors hold out for greater discounts and won't be interested in properties that won't yield at least 35% - 50%. Some investors look at their return on investment.

We are aware that some foreclosure experts state that you shouldn't waste your time with any property that can not be purchased for at least 30% - 40% off the market price.

All real estate purchases are unique. The properties, the loans and agreements, the parties involved and their financial conditions are all unique.

There are very good deals in the foreclosure marketplace that can be bought for 10% to 20% lower than the market price. These can be bought for 10% to 20% lower than the market price. These can be very attractive to the first time investor or home buyer. Don't let anyone tell you that you are wasting your time with a deal that only yields 10% - 20%. How you invest is entirely up to you! Besides, you will soon learn that some deals are actually much more profitable than they appear initially. Some of the bigger more experienced investors may overlook properties in this discount range. These properties can yield higher than average returns to the shrewd investor. It is important to research your properties very carefully. This will be covered in detail in Chapters 9, 10 and 11.

Additionally, as market conditions change from region to region, you may find that 10% - 20% off the fair market value for a property is indeed a good deal.

Finally, for investing purposes, the return on your investment will be more important than the actual retail savings. You may be able to get a 35% return on your money, while buying a property that's only 15% below market value.

Lower Down Payments

The lower the purchase price of your property. the lower down payment will be required at closing time.

Clearly, if a 10% down payment was required for the purchase of your new $150,000 home, you would need $15,000 for the down payment. If you've purchased this new $150,000 home for only $112,500. then your 10% down payment would only be $11,250. Immediately, you have saved $3,750.

More For Less

Another advantage to buying foreclosures, is getting more for less.

Let's say that you have been able to save $11,250 for the down payment on a house. In the 10% down example, you could afford a house normally valued at $112,500. Buying a foreclosure or distressed property at 25% off. your savings can now buy you a $150,000 house.

In essence, it's the lower down-payment theory in reverse. The point is, that on a limited amount allocated to your down payment, by buying a foreclosure you can end up with more property for the same amount as a lower priced property. This might allow you to have more total space than originally planned, maybe an extra bedroom or garage or even a pool. Maybe you'll end up with a larger house or even more land.

Perhaps the savings from the lower down payment and the lower monthly mortgage payments, will allow you to buy a house in a nicer neighborhood with better schools and services.

Motivated Seller

One of the most delicate components of the foreclosure process involves the home owner being foreclosed on. This person is most likely in some kind of financial trouble. The owner is about to lose his home and the equity in it.

A homeowner facing foreclosure. contemplates losing the shelter he or she provides for their family and themselves. the equity built. one's financial credibility. the possibility of getting a new mortgage or loan. the burden of relocating. and the possibility of a deficiency judgment where the homeowner still owes the bank money after the foreclosure sale.

Generally, people will do anything they have to survive. Spend less money, sell possessions, and even have their automobiles repossessed, typically come before one allows themselves to loose their home.

Less Competition For Properties

The label "distressed" sometimes has a negative connotation. Therefore most people are not interested in a distressed property. Many Realtors don't push the fact that they have distressed properties or foreclosures in their inventories. Some don't advertise them at all.

Motivated Lender

The originator of the loan. whether a bank, credit union or other similar institution. is just that. a lending institution. They are not in the real estate business. When the homeowner fails to make the regular monthly payments, the loan is in default and the lender has to take action. The bank's role in the foreclosure process will be discussed further in Chapter 5.

Liens, Judgments and Encumbrances

There are three main methods to buying foreclosures. Depending on the method or foreclosure investment strategy you use. you can take advantage of this information to make great profits. It is absolutely essential that you learn everything you can about a property you want to invest in. See Chapters 7 and 8.

Knowing whether or not a property has a lien attached to it, as well as the type and amount, are very important. Many people have purchased properties from home owners or at auction think they've made a great score. only to find liens and judgments attached to the property that could eventually cost more than the property was worth.

When a home owner is in default of the loan agreement, typically he or she is in default with one or more other agreements. This can include credit cards, car payments and second mortgages or other loans.

You may end up with the property. but you may also end up with these other bills. if liens have been attached to the property. Some investors like to contact the hme owner in this default stage to try to acquire the property just prior to foreclosure, by taking over the payments and working out deals with any lien holders there may be.

Clearly, some liens or judgments may be so high that the discounted price of the property combined with the lien, place the purchase price out of reach.

Some investors prefer to deal with foreclosures only after the auction process. While there are advantages and disadvantages to this investing method. one distinct benefit is that of "clear title." This means that there are no judgments, liens or encumbrances of any kind associated with the property. This allows for easier, less complicated real estate transactions.

Better Terms

For as many reasons as there are for foreclosures. there are just as many reasons for the lender who has taken back the property. to be willing to work with you.

The lender who now holds title to a property can offer incentives such as lower closing costs, reduced price, waive points charged when closing, or otherwise make a mortgage agreement a little more favorable to a distressed property buyer, in an effort to sell the property quickly.

Someone's Loss Can Be Anyone's Gain

I remember admiring my friend's coffee table. It was more than your average living room coffee table. it was a glass showcase containing an impressive collection of antique glass paperweights.

My friend told me that the case had a burglar alarm wired to it that sent a signal directly to the police department. and that the contents of the case were insured for over $1 million!

My friend was an auctioneer. When I asked him how he felt about making so much money from the misfortune of others. he reminded me that he wasn't the cause of their misfortune and that he was just one of those who facilitate the legal process, the laws of the land.

The auctioning or the selling of property and real estate is a trade, a profession. and someone's got to do it it's a fact of life.

Most distressed properties come on the market as a result of someone's misfortune. again, a fact of life. Remember, these properties are financially distressed as a result of job loss, or the economy, or divorce, etc.

If it bothers you to think that you may be taking advantage of another's misfortune. remember that you are not the cause of the misfortune. and this is just another one of those opportunities that are available to anyone.

If it really bothers you to think that you may be taking advantage of someone, consider this. If you buy a distressed property before it goes to auction, you can do a lot of good for the homeowner. For starters, you can make up the back payments when acquiring the property, thereby saving the homeowner's credit rating and allowing the home owner to get anther mortgage. You can give the home owner some money to put down on a new house, or to be used as a deposit on a new dwelling when he or she signs over property.

You can also take some pride knowing that you have rescued a distressed property. By acquiring and maintaining the property, chances are you will increase its value and property values in the neighborhood. At the very least, you will have stopped the depreciation of the property and surrounding neighborhood.

If those weren't enough reasons, here's one more. By rescuing this distressed property. by acquiring it before the foreclosure sale. you will most likely also rescue the loan. thereby making the lender very happy. This should make you happy to. if this lender is the same institution where you deposit your hard earned money! That's right, you're helping the bank.

Ownership or Investment?

Whether you are buying your first home or your fifth office building. buying real estate at a discount provides one of the most solid wealth building opportunities available.

If you rent currently or own a home and want to upgrade. buying foreclosures is the easiest way to save 10%, 20%, 30%, 40% or more off the regular price of a home.

No matter which method of foreclosure investing you choose. you will immediately experience greater profits. or greater equity.

or greater monthly income. merely by successfully investing in distressed real estate.

Disadvantages

The only disadvantage to foreclosure investing. is not investing.

The opportunities are endless. the foreclosures numerous. If you truly want to succeed and profit from the buying and selling of foreclosed real estate, you can and you will.

Like any good opportunity. it is only as good as those who seize it.

Thousands of people are making tens of thousands of dollars buying and selling distressed properties. The very successful ones work at it diligently.

Foreclosure investing takes time. sometimes hard work. and always a strong desire to succeed. Like any other great opportunity. you must work at it.

The great thing about investing in foreclosures is. it doesn't require any special training or education. Anyone can buy a foreclosure. Depending on your investment strategy. buying a foreclosed home can actually be easier than buying a regular home. and you save money too!

If you want to save a little on the purchase of one house. you can. If you want to buy and sell. or buy and hold. or buy and rent. you can. The level of your personal involvement in profiting from bank foreclosures is entirely up to you. Whatever level you choose. you can reap fantastic profits. but you will have to work for them.

Foreclosure Investing: An Overview

The opportunities associated with foreclosure investing occur due to state and local laws. and regulations regarding real estate transactions. Obligations aren't met. and action is taken. It's a process of law and contractual obligation. The new foreclosure investor should not confuse this opportunity with the highly publicized "no money down" methods of real estate investing.

Foreclosures occur. Investors profit. More and more investors are getting involved. Opportunities will still exist, even though many people are aware of these opportunities. they will not take advantage of them. Many more are not even aware that saving money on real estate this way is possible.

In Chapters 9, 10 and 11, you will learn the various methods of successful foreclosure investing. For now, know that there are three main methods of investing and that within each of these methods, there are many people involved in the process. Obviously the bank or lender. the title or mortgage company and the homeowner are involved. also the lawyer. Realtor. sheriff. courthouse. lien holders. auctioneer. trustee. bidders. loan and REO officers. court clerks. reporting services and so on.

Many are interested in exploring foreclosures. so there are the magazines. reports. journals. newsletters. printers. advertisers and distributors, as well.

Today you can get the information "on-line". There are many services that supply accurate courthouse information that you can access from your computer.

Not all investing methods work for everyone. Nor do all methods deliver the same results for the same amount of effort. Likewise, all local and state laws vary. Economic conditions vary from region to region. foreclosures, investors, sellers, and banks will behave differently from region to region.

Investing in distressed and foreclosed real estate is an industry.

Fortunately for us. not everyone is aware of the amazing profits made from foreclosures. and of those who do. many do nothing about it.

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