Foreclosure homes
Friday, December 22nd, 2006It does seem the wheel has come full circle. The frenetic activity in the real estate sector coupled with the exploding innovations in property finance has run its course. Mortgage lenders are left with foreclosure homes staring them in their face. All over America, borrowers simply do not seem financially sound enough to pay off their mortgage commitments.
The retail finance institutions encouraged investment in property by offering attractive options like interest only, ARMs, deferred principal repayment and so on. The reasoning then was the borrowers would earn more and hence spare higher amounts for the loan outflows. This has not come true. Rising cost of living has resulted in lower disposable incomes. Naturally, homeowners default on the mortgage dues. There is no other option for the lenders but to declare the properties as foreclosure homes.
Although the trend of rising foreclosures is saddening, especially the psychological and social fallout, there is a small niche of investors who benefit from it. They specialize in investing in foreclosure homes. Across many states, there has been a rise of about 30-50% in the foreclosures. Therefore, there are several such properties available. Another interesting fact about foreclosed properties is the attractive resale value. You could make a tidy profit within a year.
Investing in these properties could be a sensible approach as one could acquire real estate at low prices. Foreclosure proceedings commence mainly because the borrower has defaulted. But, the essential safeguards like legality of title and adherence to local laws are assured because the mortgage institutions would have done the checks before disbursing the loan. So, you are saved much trouble.
Foreclosure homes are generally available for less than market value because lenders wish to get out of the transaction. Do not however jump at foreclosure property before doing your homework. Inspect the property fully and determine how much it would take to repair and restore. Calculate how much the equity would go up after repairs. Weigh the lower purchase price against the cost of repairs and estimated rise in equity. Also establish how quickly you could turn over the property to another buyer.
It is also better to obtain pre-approval before bidding for foreclosure homes. This would reassure the seller that you are not merely a speculator and that you would settle the price within specified time frame.
