Paying the Bank: Foreclosure Property Is a Good Investment

When a seller is motivated enough to sell a piece of real property at a cut rate deal that more or less only covers the amount of money owed on it, the odds are good that it is currently in the process of foreclosure.

This seller by and large will be the entity holding the deed of trust: the bank. Foreclosure property is a much sought after piece of real estate by the average investor since this all but guarantees a cheap entry into the state of property ownership, but it is not without risk!

When paying off the bank, foreclosure property will be a worthwhile investment if the cost of the property falls below that which it would fetch on the open market. While foreclosure sales are usually set up in this manner, the recent housing boom in locations such as California has led to a maxing out of available equity and therefore a home that sells for $500,000 at auction may actually be not appraised for much more than that, especially if the homeowner sought to salvage the home by paying off bills with the equity or perhaps went in over her or his head making improvements (some of which may not be completely done and thus actually detract from the overall value of the parcel).

The downside of paying a bank: foreclosure property must be purchased in cash and all sales are final. You cannot take out a mortgage and you will not have any recourse if you find out later that the property has extensive foundation damage, water damage, or improvements which are not meeting code. Similarly, if you are seeking to outbid other investors, the cost of the property will eventually skyrocket to such a point that it may take you above and beyond the actual cost of the dwelling and you may find yourself in a fixer upper that demanded more money than a similar dwelling from a private sale would have cost.

Yet, Foreclosure sales are still a good investment

Yet even in light of some of these disadvantages, foreclosure sales are a good investments for the real estate investor in the know.

Getting to be in the know requires doing your homework with respect to the neighborhood and its current trend, such as upward mobility versus downward spiraling, the number of foreclosures in the area, and the going sales price, not asking price, of comparable properties. In addition to the foregoing, knowing the limit of what the property is worth and also committing to a certain limit of funds dedicated to fixing it up either for resale or rental are also a worthwhile step to take which will ensure that you do not end up on the losing end of the sale.

As always, the help of seasoned investors who have already learned the ropes of investing in foreclosed properties is always most invaluable to anyone who contemplates entering the real estate investment business from this venue; several publications will point you in the right directions of where to find help.