A pre-foreclosure is most accurately used to define the situation that exists when a homeowner is at least 90 days late in their mortgage payments and the lender has issued a Notice of Default. Commonly, however, the term is also used to describe a home in distress that is very near to being foreclosed on.
As a real estate investment professional,pre-foreclosures give you a much greater opportunity to make more money in your business. And you can do so while helping a seller who is quickly becoming desperate to salvage what’s left of their credit and avoid a foreclosure.
By the time someone reaches the pre-foreclosure stage, they’ve already stopped making mortgage payments for whatever reason. That is a motivating factor where both the seller and the bank are concerned since at that point no one’s making payments on the property and the bank isn’t receiving anything on their end. This can be a tremendous advantage if you’re concerned about your investment funds being tied up in properties.
By seeking out sellers who are motivated to sell, knowing they’re in the pre-foreclosure stage, you can often acquire properties with a greater percentage of equity in them up front, and you can be much more selective on the condition of the homes you buy in the process.
In the same way, by working with a lender who has no desire to simply take back a property, but who would much rather liquidate a mortgage loan that’s gone bad, you can often negotiate large discounts that you might never be able to do in different circumstances. This is especially true in a housing market that is suffering as much as it is today.
If you’re concerned about qualifying for additional financing to begin your REI career, buying pre-foreclosure homes can be ideal. Since you can often simply assume the current mortgage loan by taking the property title in a land trust, you can just start making payments without the added liability you would normally acquire.
You can also avoid the heavy competition you face when buying foreclosures at auction. And you don’t have to worry about a huge credit line either since you can usually buy a pre-foreclosure with no qualifying. All in all, it’s easy to see how you can make more money with pre-foreclosures, especially when you’re just starting out.
The REI business is a profitable one. And there are many ways to make good money by investing in real estate, whether buying to resell, or buying to hold, rent or lease. The pre-foreclosure market is certainly one to be considered, whatever your other investment goals might be.
