Investing Strategy – Buying Pre Foreclosures
Pre foreclosures are an attractive option for many real estate investors, because they represent the potential for rather large profits. Although investing in pre foreclosures can be a good investing strategy, you’ll need to be aware of the risks as well as the rewards, to determine if this is the right strategy for you.
The main reward of investing in pre foreclosures is that you can often obtain the properties at well below market value. Owners of these homes are usually motivated to sell them quickly to avoid foreclosure. They will often be willing to entertain low purchase offers so they can simply get out from under the home’s mortgage and start over.
Buying a pre foreclosure for substantially less than market value gives you the opportunity to sell the property at a large profit. You’ll need to figure in repair costs to determine if an investment is profitable, because most owners in pre foreclosure don’t have the funds to properly maintain their properties. However, the owner should allow you to inspect the home before purchase, so you can make a reasonable estimate of the repair costs before you commit to the investment.
One of the main difficulties of buying pre foreclosures is that it can be difficult to contact the property owner, particularly since you will have a lot of competition. Having a marketing system and a pre-qualifying strategy will help reduce the time spent and increase your odds of spending time on properties that meet your criteria. Since you will have to conduct quite a bit of title and lien research before pursuing a pre foreclosure, you risk wasting that time if you are unable to meet with the property owner to discuss the sale so having them contact you will help increase your odds.
Be prepared if you cannot sell the home quickly, you will want to make sure that you have alternate strategies. You may need to be prepared to incur the costs of renovating and owning the property for an extended time. It’s a good idea to have a backup plan, such as renting the property to tenants, if the home does not sell as quickly as anticipated.
