Real Estate Investments – How To Find Great Deals on Foreclosures

If you want to make money with real estate investments you probably will go the foreclosure route. But how do you find foreclosures that are worth your time and money?

First things first, what constitutes a foreclosure?

When a new homebuyer buys his house, he will, in most cases get a mortgage through a lending institution. When he doesn’t pay the mortgage he owns, the lending institution will, after a couple of late payments, start an action whereby it is legally allowed to repossess the property from you.

It’s not only cars or furniture that can be repossessed, also houses and condominiums can. The process of repossessing real estate is governed by laws and is known as foreclosure.

When you want to buy a foreclosure you will need to recognize them as such. As an example, how would you find out if the next door went into foreclosure? There wouldn’t be a big sign on the lawn that says “foreclosure property”.

Because foreclosures are government-mitigated action, the lending institution must make a formal announcement that it is going to initiate the foreclosure.

In about every county in every state in the nation will be mandated that the bank must give public notice of the intent to foreclose on a property in a local newspaper, in the legal notices section.

In some states this notice is called a Notice of Default (NOD) and in others it is known as a Lis Pendens. The difference lies in the fact that, in some states, banks can foreclose by communicating with the mortgagors.

In others states banks must initiate a lawsuit and let the court system act as mediator in the foreclosure process. In the latter, a judge will issue a judgment of foreclosure with a specific judgment amount.

When the mortgagor doesn’t pay the amount owed by a specific date, the house will be sold at a public auction with the opening bid being set to the minimum amount required to satisfy the bank plus the legal fees for the foreclosure proceedings.

What the case may be, when you find the listings in your newspaper, what information do you expect to find? In most cases the following information will be given:
Foreclosing bank
Borrower’s name
Property address
Opening bid/judgment amount
Date of the auction

Although this is good information, is it enough for you to decide whether you should invest in the house or not?

A common mistake made by new real estate investors is that they assume that each foreclosed house is a good deal that will net big profits for them. But this is not the case, not every house in foreclosure is worth your time and money.

You have to weed out the good deals from the bad ones. You should only pursue a deal if you are able to take ownership of the house and the total amount of money you put in the deal (to pay off the existing mortgage plus some money for the homeowner plus pay for the necessary repairs, holding costs and your own closing costs when you go to flip it) substracted from your final sale price when you flip it gives you a handsome profit margin.

In an ideal case you should take home a net profit of at least 10% of the market value of the house when you flip it.

If you want to net this kind of percentage you should invest a lot of time in research. This is one of the most important aspects of foreclosure real estate investing, but it is often overlooked.

You need to do your homework and put some time in researching all the information about a potential deal when you are deciding if you are going to pursue the deal or not. Otherwise you might end up buying a big money pit, which will net you a loss in stead of a profit.

In the next article I will tell you what to research before deciding to buy.