Benefits and Risks of Buying a Pre-Foreclosed Home


Many investors look for different ways to buy a property below its market value. That is why foreclosure properties are in great demand nowadays. However, do you know about pre-foreclosure properties and the benefits associated with investing in such properties? Definitely, it is beneficial to buy a pre-foreclosure property but some risks are also associated with pre-foreclosure properties.

What Is A Pre-Foreclosed Home?

A pre-foreclosed home is a property in which foreclosure proceedings may or may not have commenced. These properties are in the early stages of being repossessed by the lender, most commonly due to the fact that the homeowner is no longer capable of making the outstanding mortgage payments. When a home is in pre-foreclosure, the homeowner can make the required payments to bring the account current or sell the property before it is fully foreclosed. The pre-foreclosure period lasts three to 10 months after which a public auction is arranged. If the property owner wants to avoid foreclosure, he or she must immediately begin making late payments in order to reverse the default or find someone who will buy the property.

Benefits of Investing In Pre-Foreclosure Real Estate:

* Motivated Sellers: When a property is in pre-foreclosure, the assumption is that the owner can no longer afford their mortgage payments, meaning that sellers in pre-foreclosure are some of the most motivated sellers you will ever find. They are in the process of losing their home and are therefore motivated to move quickly in order to avoid dealing with the bank.

* Negotiation Power: When a seller is in pre-foreclosure, you may have the chance to purchase the property for below market value and you may also be able to convince the seller to complete certain repairs before purchase. Working with distressed homeowners comes with pros and cons, but putting your negotiating skills to the test will ensure a deal that is in your favor.

* Avoid Auctions: Bidding at a real estate auction can be exciting the first few times, but you will quickly learn that this type of action is not for everyone. Investing in pre-foreclosures as opposed to foreclosed or bank owned property can give you the same results without having to attend an actual auction.

* No Mysteries: When purchasing a bank-owned home at auction, its true condition is rarely fully known. Purchasing a home that is still only in a pre-foreclosed means you can visit the home as well as have it properly inspected.

* Quick Buying Process: Since the seller is motivated and you can typically negotiate a good deal, buying a pre-foreclosure property is typically quicker than purchasing an investment property in more traditional ways.

Risks of Investing In Pre-Foreclosure Real Estate:

* Added Expenses: Pre-foreclosed homes may come with liens and unpaid taxes, which the new owner will be responsible for paying. Title searches will reveal any liens on the property.

* Poor Condition: Pre-foreclosed homes may be in poor condition. Before purchasing a pre-foreclosed home, an investor may want to consider how much it will cost to make repairs on the home. If the intention is to quickly resell the house for a profit, expensive repairs can quickly diminish the profit margin.

Investing in pre-foreclosure deals takes knowing how to talk to a distressed homeowner. You need to think about the process from their point of view and what you can do for them. As with all business dealings, the more experience you have, the better you will be.  Pre-foreclosures are a great niche to be a part of, as long as you know the intricacies they entail.

Whether you want to learn more about investing in foreclosures, bank-owned properties and short sales, New Wealth Advisors Club can teach you how to be a successful Real Estate Investor. Click here to get started.