Benefits and risks of pre-foreclosure property

Do you want to buy a house at cheaper rate? Many people look for different ways to buy a property below its market value. That is why; foreclosure properties are in great demand nowadays. Do you know about pre-foreclosure properties and benefits associated with investing in such properties? Definitely, it is beneficial to buy a pre-foreclosure property but some risks are also associated with pre-foreclosure properties.  

A pre-foreclosure property has a loan, and the landlord is in impending danger of losing his property due to foreclosure. The property has been listed as delinquent and soon the lender will take the custody. A buyer may be able to get a pre-foreclosure for 40% less than the current market value of a home, and the deal would close faster than would a foreclosure. Understand that the owner can stop the foreclosure process by selling the property or paying off due amount. Here are some tips for you

1) Find properties- Find distressed homeowners. You can use ads, mails and market yourself through networking. In local newspapers, you can find foreclosure notices. You can even subscribe to online listing services.

Once you find a property, it is time to know more about its neighborhood and condition. You can meet the owner or ask neighbors. Be careful as the owners are still living in the home.

Make sure that the property is still in default- you have to confirm that the property is in default and a homeowner has not resolved the situation. You can contact the person, party or trustee who is doing the paperwork to start and complete foreclosure proceedings on a property.

Find the potential bargain. Collect following details:

• History of ownership
• Estimated market value
• Outstanding loan balance
• Loans and other property liens the owner may have taken out
• Your monthly expenses including taxes, repairs, insurance, mortgage payment, etc. as a homeowner

Think about all the costs as a buyer including repair costs, extra liens, loan balance, etc. from the estimated market value of the property. The calculations will be a basis for your bargains with the owner. You can easily get all these details through country recorder as this is all public information. If necessary, use online services or consult a local real estate agent.

4) Contact the owner- With all above information ready, it is now time to approach the owner.  

• You should let the homeowner know of your interest in the property. So, send a letter.
• Search for the contact details of the homeowner.
• Direct communication is always better. Try to schedule a meeting so that you can discuss a possible sale. This is also an opportunity to have a look at the property.
• Make sure that the property meets your criteria.
• Depending on the owner, you may have to buy the property "as is."
• Note down the estimated repair costs and consider them while quoting your purchase offer.

When all goes well and both of you agree to proceed, you should negotiate the terms of a purchase. As a buyer, you should aim at buying a property at least 20% below market value. While determining the final purchase offer, consider the rate of real estate appreciation in the locality along with the potential for increasing the value of the house by making improvements and repairs.

Close the deal- Put the agreement in writing. It is better to consult a local real estate attorney or agent.  The purchase agreement should make final deal reliant on a professional inspection of the property and a complete title search accomplished by an attorney or title company.

Keep in mind that a property in pre-foreclosure status is not essentially for sale. Sometimes, the property owner may look for other options to resolve the default. Nevertheless, a pre-qualified cash buyer with his offer is supposed to be the best possible decision to resolve the default.

© Global Realty & Investment Corp