How Bank Foreclosure Homes Can Be A Great Opportunity For Investors

Bank foreclosed homes happen a lot more frequently in this economy. So don’t feel bad about them, they are a natural financial process for those who cannot no longer pay the mortgage on their homes. What happens is the lender is now forced to own the initial mortgage they initially granted, which creates losses for them. But before this happens, a lot of these homeowners usually sell the home to escape the mortgage, but at times, they owe the lender more than what the home is actually worth.

So, at this point, the mortgage lender or bank now takes over ownership of the home, that is now less valuable than what the mortgage originally was. Meanwhile, the home will continue to lose value as it will sit vacant. The lender now becomes responsible for all expenses on the property such as property taxes. This is obviously an unwanted losing proposition for the lender, and thus they are looking to sell off these bank foreclosed homes, usuallly at a discount.

This is why these bank foreclosed homes are an attractive investment for the savvy investors who has cash or credit available. There is usually some profit potential in flipping these properties. The homes are usually picked up at a fraction of their appraised value. The unusual foreclosed home at the right situation can be found at a 20 to 30 percent discount. So these investors are just following the business adage “buy low and sell high.”

The banks and mortgage lenders are eager to rid of these properties simply because they are simply not in the property management business. These homes become extremely expensive to upkeep and maintain, and the property taxes, insurance and other expense of maintaining a vacant property on their books makes it a losing proposition. Furthermore, if there are too many of these vacant homes sitting in a particular neighborhood, the property value of all of the houses will eventually go down, and new potential buyers will be reluctant to move into “ghost towns.”

The primary reason why bankers do not like foreclosed homes is that they are concerned about their bottom line. A good performing mortgage is an asset to them, while a foreclosed home is a bad liability. In just a few months, banks can go from having an excellent net positive asset portfolio to a net negative one instantly, based on these bad loans. When this begins to happen frequently, the bank would them be forced to go for a bail out themselves from Washington.

Where To Buy These Foreclosed Homes
There are a few ways these lenders rid of these unwanted bank foreclosed homes. Initially, the bank will offer the foreclosed home at a local sheriff’s auction, immediately after the court’s declaration of foreclosure on the property. At times, the lender will have a large number of homes that they will have on their books, and decide to have just one large auction sale.

Regardless, you as an investor will have to do some homework before you bid on a foreclosed home at these auctions. While you can find a lot of deals at the real estate auction, you can at times also end up paying way too much for a ‘bad’ property. Once a homeowner is facing potential eviction from the bank, they at times will take out their frustrations towards the bank on the foreclosed property. This can unfortunately be in the form of vandalism, or the evicted homeowner will take anything from the home of any value, these items can include: kitchen counters or bathroom fixtures, etc. There have been stories about these disgruntled homeowners ripping out the copper pipes from the walls of a home that’s about to be foreclosed, just to sell the metal. So when you do an inspection, you’ll have to factor in the cost of any repairs before making your bid.

The lender will usually make a list of available bank foreclosed homes to the public. There are also a number of real estate agents who specialties in bank foreclosure homes specifically, and contacting these RE professionals can be a good start, if you’re new to foreclosure investing.

You should be aware that the prime foreclosed homes will not stay on the market for long. There are way too many experienced investors who can spot a good value. For this reason, it’s vitally important to get access to a good current listing, so you can get the properties first. If you know how, you can get these fresh listings directly from the courthouses, lending institutions or government agencies. But as the saying goes, ‘time is money.’

So if you’re interested in getting started in real estate foreclosure investing, consider the following resource…

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