Why Investing in Preforeclosures May be Safer than Foreclosures

Pre-foreclosure Investing May be a Better choice than Investing in Foreclosures

The current state of the real estate market has everyone in a frenzy over how to invest in foreclosures. Opportunities to pick up a cheap property seem to be everywhere. A whole new generation of investors want to get involved in buying foreclosed homes. Time to slow down and take a look at investing in foreclosures and show you that preforeclosures may be the better way to go.

There are four different stages to the foreclosure process:(1)before the notice of default is filed-preforclosure(2)filing of the notice of default(3)Foreclosure sale(4)new owner which could include the bank-REO.

There are what I consider some distinct advantages to buying in the preforeclosure stage over the forclosure auction.

First and foremost is that in preforeclosure you know exactly what you are buying. You have worked with the distressed owners and have performed a thorough inspection of the property. You have completed your budget for repair costs and you know how much work is involved.

I hope you have the cash to purchase at the auction. They won't even let you bid until you show proof of the funds. In a pre-forclosure deal you line up financing and in certain circumstances the current lender will work with you.

Title insurance may be difficult to obtain on a foreclosure because the title companies are exposed to additional risk. For instance they can't be sure that the foreclosure process was followed according to the law. Often this is a risk they won't take.

As long as were talking insurance, you may find that you can't get property insurance if it turns out the property has had prior insurance claims filed. With preforeclosure you can find out if the home is insurable before you buy it.

At the auction you don't have any way to negotiate terms and the sale is final. In preforeclosure you have the ability to craft an agreement that meets everyones needs.

In a preforeclosure sale you can help the owners minimize further damage to their credit. That does not happen at the foreclosure auction.

When you buy an occupied property at auction you don't know what to expect from ex-owner. They could tear the house up, squat for months and cost you a significant amount of money that you hadn't planned on having to spend. In preforeclosure you have negotiated directly with the owner and have built their trust in you.

The next question you probably have is how do I find preforclosures to invest in? There are a few different sources for leads on properties but the one that have found to be useful is RealtyTrac. I hope this post has opened your eyes to a different way of looking at foreclosure investing.

Until Next time