Since the first time someone staked a claim on a plot of land, real estate has been an attractive option for investors. Whether used as a hedge against inflation through appreciation or a source of positive cash flow through rentals, real estate presents opportunities for investors in the full spectrum of risk tolerance.
Foreclosures offer an added advantage, the possibility of acquiring real estate at significant discounts, although not perhaps as deep as some late-night infomercials and Become a Millionaire With No Money Down seminars might suggest.
There are a lot of misconceptions about foreclosure investing. Interestingly, the conventional wisdom can be not only contradictory, but at opposite extremes.
You may hear that closing a foreclosure deal is almost impossible. The truth is that not only is it possible, it can be very profitable. Informed investors close deals every day.
Or you may hear that closing a foreclosure deal is easy and anyone can do it. The truth is that working the foreclosure market is not for everyone. Only those who are willing to learn the special world of foreclosures and invest a significant amount of work at every stage will be successful.
Along with the discounts you won’t find in the conventional market, there are considerations that aren’t an issue when buying a non-distressed property. To minimize risk and avoid unnecessary exposure, foreclosure investors must take the time to learn the foreclosure process, which varies by state. See Foreclosure 101 for information on the foreclosure process and state laws.
In addition, there are other issues unique to certain types of foreclosure investing, such as sometimes having to approach an unwilling seller or evict the former ownerA deal can go off the rails at the last minute for multiple reasons. There are no guarantees, no inspections and no title insurance, which makes research into title and liens, always important issues with a real estate transaction, especially critical in a foreclosure deal. Lack of due diligence in those areas can turn a sweet deal sour in an instant.