Reasons why buying a foreclosure is a good investment

Foreclosures are the perfect investment choice for investors as they are sold at discounted prices. You get a property with built-in equity. Foreclosures can be acquired at foreclosures or by purchasing REOs (bank-owned real estate). Short sales are pre-foreclosures and have not gone through the foreclosure process. They are still owned by their current owners who are in default or about to default. The seller must obtain approval from their lender in order to sell the home for less than what they owe on the mortgage. Shorting is also a good investment as it sells at discounted prices. However, there is no guarantee that your offer will be accepted by the seller’s lender, and the closing date cannot be determined until the seller’s lender approves the sale. If you don’t have time to wait, foreclosure properties and REOs are better choices.

Buying at foreclosures

Foreclosure auctions are open to the public. The highest bidder will be awarded the property for cash and will receive a certificate that must be entered at the district registry office. Each state conducts its foreclosures differently. In some states, foreclosures are conducted by the sheriff in the county courthouse. Other sales are conducted by private escrow or auction companies on the property. You can also buy foreclosures at online auctions. Some states allow the former owner to repurchase the property after the sale under statutory repossession laws. You should always check the foreclosure laws of the state where you are buying real estate. Information on public foreclosures can be found in the local newspaper. Notices are also posted at the private and district courts. Information is also available online from many sources.

due diligence

Before you decide to bid at a foreclosure, check the recently sold comparable properties in the area where the home is located to make sure you are not overpaying for the property. You should conduct a title search to find out if there are any liens on the property. Title insurance is not available for auction items. When you buy a foreclosure property, you are responsible for paying off liens and evicting any previous owners or tenants who may still be living in the property. Federal foreclosure laws protect tenants from evictions. A tenant who has a lease can stay on the property until the end of the lease term and for an additional 90 days after receiving an eviction notice. Tenants without a lease may only stay 90 days after receiving an eviction notice. If you live in the area you should drive by the property to see if it is vacant.

Also, make sure you conduct an inspection of the property on the day the inspections take place. The majority of foreclosure properties are not in good condition, leaving room in your budget for repairs. For those of you who are handy, you can save money by doing some of the work yourself. If you are the successful bidder you will receive a deed which should be registered with the relevant registry office for the county where the property is located.


REOs are foreclosure properties that were not sold at auctions that lenders have repurchased and listed for sale at discounted prices with local Realtors®. Because REOs offer lower risk, REOs are very popular with first-time homebuyers and new investors. They are also sold at or below market value. You can get title insurance and not have to worry about liens. REOs are vacant, so there is no issue of evictions from former owners or tenants. The best way to find REOs is to work with a local Realtor® or search online at sites like REOs are advertised in the MLS, and you can also find them online and advertised in local newspapers. You make an offer just like you would with a resale home, but it can take up to a week or two to get a response from the lender. You don’t need cash to buy an REO, but banks prefer cash because they know you can close quickly.

Both foreclosure properties and REOs offer investors/buyers the option to buy low, rehabilitate and either sell higher, or hold the property and rent it out until the market recovers. Investors should take advantage of buying a bargain foreclosure property while opportunities still exist.