If you are looking for the best opportunity to profit by investing in real estate, looking to foreclosed homes may be a great option. Foreclosed homes often sell at steep discounts which affords buyers an easy point of entry to begin making a profit. Homes that are facing or have gone through foreclosure often easily meet the investing goals of both the long and short term buyer and often provide a great return on investment.

Foreclosure and Preforeclosure.

Simply stated, a foreclosed property is one that have been repossessed by the lender for non-payment of the mortgage. Because most mortgages are collateralized by the actual property, a home that has gone through foreclosure has been taken back by the bank. There are a lot of things that happen through this process, and depending on which state the home is located, the process can actually take many months. As a result of the complexity of the process as well as the length and the cost for both the bank and homeowner, there exists and opportunity for investors to intervene and help both parties in the situation.

While the property is going through the foreclosure process, but before it has been repossessed from the homeowner and set up for auction, the real estate investor may have an opportunity to jump in. This period, often referred to as preforeclosure, is when the bank has served the homeowner with legal papers (referred to as a notice of default and Lis Pending) and is actively pursuing the repossession of the property. During this time, the homeowners are in the position that they are no longer making payments to the bank and at risk of losing their credit rating, their home, and even their dignity. During these periods, an investor may choose to intervene and buy the home at a discounted rate from the homeowner. Depending on the situation, the investor may be able to purchase the property for less than is owed on it (short sale) which presents a significant opportunity.

As mentioned previously, the preforeclosure process may last many months. However, if a resolution is not met between the bank and property owner or a possible investor, the process ends with the bank placing the home up for public auction.

The final step in a foreclosed home is when the local sheriff comes to serve the eviction notice and paste the auction notice on the front door. At that point forward, the home is officially foreclosed.

Although it is much more competitive, once a home is foreclosed upon, it may be bought at a discount at public auction. During these auctions there are certainly deals to be had. However, it is important to realize that if the minimum bid is not met, the bank that owns the property may choose to buy it back. Also, at public auction, you are competing with a number of other investors so you may not get as good of a deal as you would have previously. All in all however, investing in foreclosed homes can be a great way to profit.

Brian Nelso specializes in helping real estate investors find foreclosed homes, short sales and fsbo deals.  Visit us today for your free copy of our award winning real estate software.