Before I start let me get the disclaimers out of the way. Every house, seller, lender, and bank situation will be different so when using the advice given here, use due diligence in finding out whether a deal you find is right for you.
In this real estate market full of foreclosures, falling home prices, and interest rates there are definitely deals out there to be made. The hard part is finding those deals and being able to make a move on them. If you want to get the most for your money in this market you must make sure that your deal is actually a deal. What I mean is that you are spending the least amount of your money possible and getting the best value. Lets say you find what you think is an amazingly low priced property. If the property is in an undesirable area with the inside gutted out, you could actually be headed toward spending double what you paid just to get the home back into selling condition if your investor. If that home is your next move you’d be stuck either paying 2 mortgages while that home is made livable or if you’ve already sold your old home you’ll find yourself in horrible surroundings until the new house is finished. All the while you’re spending money.
It is very possible to find great low priced high value opportunities with foreclosures and bank owned properties. If you aren’t already familiar with what these are then I’ll very briefly explain. When someone uses a loan to buy a house, until the loan is paid in full the bank or lender actually owns the home (in a sense) while the person who got the loan lives in the home and makes payments back to the lender or bank . Should that person stop making payments for a long enough time the bank/lender takes back the home (or forecloses on it). Its possible to make deals on these homes because the basic way a bank/lender makes money is loaning money and profiting from the interest paid. They have a limit on the amount of money they can loan which is further decreased by having to foreclose and resell a home. Each home represents a piece of the money they can lend. If they can,t lend money, they can’t stay in business. You can profit from it being in a banks’ best interest to not have homes on their books (taking the place of money they can lend).
The down side to this, at least in California, is that when you do find a great price on a bank owned property the home is sold to you as is with no guarantee. You can get a great price but may find yourself in the situation described in the beginning of this article. Often people who can’t avoid loosing their homes to the bank do some awful things to a house out of anger and spite. This goes double for disgruntled renters. To make things even harder not all lenders and banks are willing to take much off their asking price or play hard ball for quite some time before letting a property go for a low price. The reason for this is that banks want to look strong and won’t publicly admit that they have a vast supply of bank owned properties. Trust me you’d be hard pressed trying to find information on a bank or lenders website about this. If you are interested in these types of properties, contact your real estate agent or go to a bank in person and ask a branch manager.
When you are looking for a true deal and I mean true deal, pre-foreclosures is the best way to go. Pre-foreclosure? You mean it is possible to know when someone is not making their mortgage loan payments and will be foreclosed on? In all actuality, yes. You just have to know where to look and “keep your head on a swivel”. It isn’t a great thing to be behind on your mortgage and looking ahead to loosing your home so use tact and care when dealing in these situations. Why are these deals so great then? Because they can be advantageous to you and everybody involved. Also more often then not you can see the inside of the home before you buy. People that haven’t run out of time and still living in the home won’t be subject to damaging a property especially if there’s hope. This also brings me to my other point. Those running out of time and solutions are open to just about anything that can prevent them from home loss or financial ruin.
Normally a person facing foreclosure in this market will owe more than their house is worth. This means they are in a short sale situation and have accepted that keeping their home is not an option. They would rather sell and get away from their biggest debt which is their mortgage. This leaves the window wide open for you to make whatever kind of offer you want to make as long as their bank/lender that they owe money to will accept it and free them from their mortgage obligation.
If you do find a person who has their heart set on keeping the home for whatever reason you can help there too. Have them short sale their home to you for as low as the bank/lender will accept and let the seller stay in the home and pay you rent to cover the mortgage. In this situation you won’t be living in the new home but you would instead become an investor which opens up a new world of opportunities for you. Make sure that the amount of rent charged covers your mortgage payment plus a little extra for yourself. You are now making money every month and the seller has avoided foreclosure. Once you have built equity in that property you can use it to help buy your next home or your next investment.
Short sales are the most common and easiest way to come upon pre-foreclosures. They are rampant on the multiple listing service used by real estate agents. To get access contact your Realtor and let him/her know that you are interested in looking for short sale property and they will be more than happy to assist you. There are other uncommon ways to find pre-foreclosures but you’ll have to do a little more digging to find them like for sale by owners, homes with notices of default, and public records at the county recorder.