Bank Foreclosed Homes an Opportunity For The Savvy Investor

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Bank foreclosed homes are homes that the lender now owns because the initial mortgage holder failed to make the payments.  Many of these former homeowners would have sold the home to get out of the mortgage, but they owed more than the home was worth.  So, at this point, the lender now owns a home that is less valuable than the mortgage was.  The home continues to lose value as it sits vacant.  Meanwhile, the bank is now responsible for all of the property taxes.  This is a loosing proposition for the lender and they are looking to get rid of these bank foreclosed homes.

That is why bank foreclosed homes make such an attractive investment for the forward looking individual with cash in hand or credit availability.  There is a lot of profit potential in these properties.  These homes can usually be picked up at significantly less than their appraised value.  It is not unusual to find them at a 20 to 30 percent discount.  Following the business adage “buy low and sell high,” you can get a good return on your investment when you buy bank foreclosed homes.

You have to understand that banks are not in the business of managing property.  Homes are expensive to maintain and the insurance, property taxes, and other costs of having a vacant property on the books make this a losing proposition.  Further, if too many vacant homes sit in a neighborhood, the value of all of the properties goes down as new buyers are reluctant to move into a so called “ghost town.”

The banks are also concerned with their bottom lines.  A performing mortgage is an asset.  A bank foreclosed home is a liability.  In a matter of months, a bank can go from having a net positive asset to a net negative one.  When this happens too frequently, the bank is forced to go hat in hand to Washington to request a bail out.

There are many ways lenders get rid of bank foreclosed homes.  Initially, the lender may offer the home at a sheriff’s auction immediately following the court’s declaration of foreclosure.  Other times, they will bundle houses they have on hand into one large auction sale.

In either case, you need to do your homework before bidding on a home at auction.  While you can find many deals at a real estate auction, you can also end up paying too much for a dud.  When a homeowner is facing eviction from the bank, they often take out their frustration at the bank on the property.  Sometimes this is in the form of vandalism.  Other times, the homeowner takes anything of value – counters, bathroom fixtures, etc. – out of the home.  There have even been stories about homeowners ripping the copper pipes out of a home that is about to be foreclosed upon to sell for scrap.  When you do your inspection, factor in the cost of any repairs before you make your bid.

Other times, the lender will make a list of bank foreclosed homes available to the public.  There are an increasing number of real estate agents who are developing specialties around bank foreclosed homes, and contacting one of these professionals can be a good idea if you are new to real estate investing.  

You should know that the best bank foreclosed homes do not stay on the market for very long.  There are too many savvy investors who can spot value.  For this reason, it is important to have access to the good listings so you can get to the properties first.  If you have the time and resources, you can get listings from courthouses, lending institutions and government agencies.  But as they say, time is money.  For about $50 a month, you can subscribe to listing services of bank foreclosed homes across the country.

If you are just getting started in real estate investing, consider the avenue of bank foreclosed homes.

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