Advantages & Disadvantages of Working in the Pre-Foreclosure Market - by Tim Mai

There's no doubt about it-the pre-foreclosure market offers many advantages to the careful investor.

First of all, you can buy properties at a deep discount. Discounts can range from 20% to over 40% of market value. This means you can buy a property, turn around and sell it at under-market value, and still make a great profit.

Second, you can structure deals that will cost you very little money or, in some cases, no money at all. This doesn't mean you'll be able to operate in the market without cash reserves. That's just plain foolish. However, it does mean you can get creative and legally use other people's money to finance your deals.

Third, you can buy properties quickly without all the rigamarole that goes on with conventional transactions. This not only means that you don't get buried in paperwork, but you're also able to turn relatively quick profits while moving on to the next deal.

Fourth, a great advantage of operating in the pre-foreclosure market is that you're able to research and inspect properties. This isn't possible during the later auction phase of foreclosure which means you could end up with a "pig in a poke" if you're not very careful. Buying a pre-foreclosure avoids this potentially disastrous possibility.

Fifth, you're able to structure sales agreements in a creative fashion. This means you can generate the best terms possible for you while, at the same time, helping a home owner out.

Sixth, you have the opportunity for financial and personal freedom. In effect, you're an entrepreneur, and you can set your own hours, rules, and profit goals. You're no longer slave to a boss and a rigid office routine. Best of all, once you become proficient at buying and selling pre-foreclosure properties, you can ensure a secure future for you and your family since you're not limited to the amount of money you can make. Also, your knowledge of the pre-foreclosure market will transfer to other aspects of real estate, allowing you to expand your efforts into different markets.

Of course, every field has its disadvantages as well as advantages, and it pays to be aware of them so you're prepared to deal with and overcome them. Let's look at the disadvantages next.

Let's face it-foreclosure is not an easy process for the homeowners. That means you're going to deal with people who may be angry, frustrated, and looking for someone to blame. In some cases, they can be very difficult to deal with, and you have to be prepared for these situations. Working with home owners in foreclosure situations calls for tact, patience, and empathy. In effect, you have to be a "people person." We'll discuss this at length later in the book, but the best attitude to take is that you are a problem-solver; that is, you're there to help the property owner out of a bad situation in the best way possible. This attitude will help you maintain your sense of perspective and humor in all your dealings.

Another "disadvantage" is that you'll have to do a considerable amount of courthouse research to make sure your deals are profitable. This is hard work, requiring extensive attention to detail to make sure the property isn't loaded down with unexpected liens and other items that can entangle you in legal procedures over a long period of time and end up reducing your profit-or even resulting in a loss. When dealing with pre-foreclosure properties, the devil is indeed in the details!

Finally, competition is tough in the pre-foreclosure market! After all, other buyers will be seeking the same profit opportunities that you're looking for. This means you have to be up-to-date on local conditions and opportunities and stay on top of the market at all times!

You don't have to be a financial genius to operate successfully in the market, but there are definitely certain pre-requisites you must have. Most fundamentally, you need complete and detailed knowledge of not only the market, but the local, state, and national laws regarding foreclosures. This book will provide you with the basic information on that subject, but you'll need to study real estate rules and regulations in detail so you can operate effectively and not inadvertently break one or more of those laws.

This means you'll need to do your research and do it well. If you're a person of action and don't enjoy reading all that much, think of it this way: You wouldn't go hunting with an empty gun. You'd just be setting yourself up for failure and wouldn't bag any game at all! So, consider research your ammunition. Once you have a full load, you'll be able to hunt down and bag the best and most profitable bargains possible!

No doubt you've heard the famous saying that there are only three things important in real estate-location, location, location. Well, in the pre-foreclosure market, there are three other things that are very important-persistence, persistence, persistence! Absolutely nothing beats persistence! You have to be willing to dig and dig (in terms of research) and to deal effectively with owners and your competitors. Remember, the race doesn't always go to the smartest person around; it goes to the person who never, ever gives up!

Pre-foreclosure investing is one of those investing strategies that you do not require any money or credit for. Sellers will often deed you their house for free.