Reasons Why Buying a Foreclosure Is a Good Investment

Foreclosures are the perfect investment choice for investors because they are sold at discounted prices. You are getting a property with built-in equity. Foreclosures can be purchased at foreclosure auctions or by purchasing REO’s (bank-owned real estate). Short sales are preforeclosures 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 his or her lender to sell the home for less than he or she owes on the mortgage. Short sales are also good investments because they are sold 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 auction properties and REO’s are better choices.

Buying at Foreclosure Auctions

Foreclosure auctions are open to the general public. The highest bidder is awarded the property for cash and given a deed that must be recorded with the county recorder’s office. Each state conducts its foreclosure sales differently. In some states, foreclosures are conducted by the Sheriff at the county courthouse. Other sales are conducted by private trustee sales or auction companies at the property. You can buy foreclosures at online auctions, too. Some states allow the former owner to redeem the property after the sale pursuant to statutory redemption laws. You should always check the foreclosure laws of the state in which you are buying property. To find out about public foreclosure auctions, you can check the local newspaper. Also notices are posted at the private and at the county courthouse. Information is also available from many sources online.

Due Diligence

Before you decide to bid at a foreclosure auction, check the recent comparable sold properties in the area in which the home is located to make sure you are not overpaying for the property. You will want to conduct a title search to find out if there are any liens on the property. Title insurance is not available on auction properties. When you buy a foreclosure auction property, you are responsible for paying off liens and evicting former owners or tenants who may still be living at the property. Federal foreclosure laws protect tenants from foreclosure eviction. A tenant who has a lease may remain on the property through the end of the lease term and for an additional 90 days after they receive a notice of eviction. Tenants without leases may only remain 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, be sure to conduct an inspection on the property the day assigned to inspections. The majority of foreclosure properties are not in good condition so you must leave 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 be given a deed that should be recorded with the county recorder’s office where the property is located.


REO’s are foreclosure properties that did not sell at auctions that the lenders bought back and listed with local RealtorsĀ® for sale at discounted prices. Since REO’s offer less risk, REO’s are very popular with first-time home buyers and new investors. They are also sold at or below market values. You can purchase title insurance, and you don’t have to worry about liens. REO’s are vacant so there is no issue of eviction of former owners or tenants. The best way to find REO’s is to work with a local RealtorĀ® or search online at websites like REO’s are advertised in the MLS, and you can also find them on the Internet and advertised in local newspapers. You make an offer the same as you would on a resale property, but it may take up to a week or two to get a response from the lender. You don’t need cash to purchase a REO, but cash is preferred by banks because they know you will be able to close quickly.

Both foreclosure auction properties and REO’s offer investors/buyers the opportunity to buy low, rehab and either sell higher or hold the property and lease it out until the market rebounds. Investors should take advantage of purchasing a foreclosure bargain property while opportunities are still available.