Foreclosure Investing 101

Foreclosure real estate offers an opportunity for a smart investor to get a great deal on a property. The foreclosure process happens in certain distinct stages. Each different stage of the process offers a different opportunity and strategy to make an offer on the property. The smart foreclosure investor can often create a win-win situation for everyone around and walk away with a real estate asset at a great value compared to purchasing on the open market.

Pre-Foreclosure

Contrary to belief, the best opportunity to purchase a property often comes when it is in pre-foreclosure. This means that it occurs before the home is actually foreclosed upon and before it reaches the auction stage. The idea is to identify properties where the owner is in distress and is late in paying his mortgage but has still not defaulted long enough for the bank to take possession of the property.

In this situation you have some very powerful psychological leverage to your advantage. Most people are aware of how important their credit history is and are also aware that a foreclosure on their record can make getting credit very difficult or impossible for many years to come. The idea of letting someone else take over a property…even one that they love and don't want to leave is often less painful than the realization that they could be stuck with a destroyed credit history.

There are several services and websites that you can identify properties that are in various stages of foreclosure on. After you identify these properties you should research the property by looking at comparables as well as examining the property's specifics such as location, lots size etc, just as if you were going to purchase the property. Once you've identified a handful of properties that you are interested in, depending on the situation you can approach the owner of the property, the lender or both.

Usually the best approach is to speak with the owner one on one and have a heart to heart conversation about his situation. If you're able to convince the owner that selling to you is better than being foreclosed upon, you can then try to get the lender involved and see if you can negotiate the existing debt on the property down.

Surprisingly, once you find a distressed homeowner that is willing to work with you you'd be surprised how many banks would rather make a deal for you to take over the property than to have to go through the messy and expensive foreclosure and auction process. Some lenders will even be willing to take a small loss on the property to avoid being ‘stuck' with the home. However, most banks if not skillfully convinced will take their chances at auction hoping that enough bidders will make offers on the property to cover their complete obligation on the property.

If you are not able to convince the bank to sell directly to you during pre-foreclosure you still have two more chances to get the property; during the auction process itself as an REO (Real Estate Owned) if the property does not sell. To learn more about these phases and get specific inside strategies on how to get foreclosed properties please visit www.PropertyWorkouts.com.