What Is the Best Way to Buy a Foreclosure Property?

There are three major ways to buy foreclosure properties, and they each have their own unique set of pros and cons. You have to decide which one is best for you based on your own level of comfort and ability. Once you have a list of properties, where should you start?

Buying pre-foreclosures usually involves buying directly from the homeowner. You will negotiate directly with the current homeowner to take possession of the property before it enters foreclosure, helping to save his credit and perhaps giving him a small amount of cash for his equity.

When purchasing pre-foreclosures, there are a few things you need to do to make sure the sale runs smoothly. First, you need to look for people with loans in default. Then you have to narrow your choices down to a few good options.

You need to make an appointment with the homeowner to view the property, negotiate a preliminary price range, and find out the fair market value for the property minus any potential repair costs.

Then you need to work between the homeowner and lender to pay off the default so you can close on the property and sell it quickly for a profit. The best thing about buying pre-foreclosures is that you often won’t need a down payment, and if you do it’s often small. You can also get great prices from desperate sellers. But this particular method can be difficult and time-consuming.

Buying at auction is the most common way people buy foreclosures. While this particular method may seem simples, it can be quite dangerous. If you’re going to buy homes at auction, it’s important to do thorough research before auction day to make sure the home is in good condition and would offer a good ROI (return on investment).

Although there’s a huge benefit of savings of around 35-45% off of market values, this particular method can be a hassle. You’ll have to deal with frequent auction postponing, title search fees, and needing to have more money up front to invest.

Most people consider buying REOs the easiest way to buy foreclosures. REO stands for real estate owned. This means the lender has come into full possession of the property because the property didn’t sell at auction.

Banks don’t want to own real estate. It’s not their business to do so. This means they’re often eager to get rid of these properties as quickly as possible. This can mean good prices, but usually not as good as those you could get at auction.

One major benefit of buying an REO is that the title is usually clean. Since the lender is usually the senior lien holder on the home, other liens would be eradicated at the auction. By the time it becomes REO, the title is usually clear and any back property taxes or homeowner’s association fees have been paid.

Like any method, buying REOs does have certain risks involved. While it’s less risky than buying at auction, the savings also aren’t as great. This means you will probably make less overall profit on REOs than auctions or pre-foreclosures.