Foreclosures happen when lending institutions such as banks repossess a property because the borrower has not made payments for a certain period of time. Once the bank has gone through the processes involved in foreclosures, they put out the property for sale, usually at a discount to market price.
Prices are usually lower because these kinds of properties are considered as non-performing assets in the bank’s books and therefore, they would want to dispose these immediately. In addition, they would want to recoup their losses from these bad loans as quickly as possible.
It is from those reasons that many people have taken interest in acquiringforeclosed properties. The steep discount to market price has attracted many knowing that they can immediately take profit from capital gains.
However, it is not correct to assume that all foreclosed properties are good deals. As with dealing with any other real estate investment, this also entails time, effort, and due diligence. To stress that looking for good foreclosed deals takes time, most gurus would recommend the 100-10-3-1 rule. This means that for every 100 foreclosed listing that you check out in the advertisements, you can find 10 that are worth inspecting. After the inspection stage, you can find approximately 3 properties that will suit your criteria and most probably, you would end up buying one. That’s one property for every 100 listing.
Once you’re done doing due diligence and selecting that one property that has passed all your criteria, the next thing you have to think about is financing. Will you get a bank loan? If so, which bank can offer the best payment options for your budget? You can check out the article I have written about the different types of financing options available.
Just remember that each investment entails risks and much of these risks are minimized if you are willing to invest your time in doing so – foreclosed properties included.