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Learn to Buy Foreclosures

Updated on January 27, 2010

The recent economic downturn has caused many people to put more of their money into real estate as the stock market becomes a more risky venture. If you’re looking to invest but wary of the stock market, becoming a foreclosure investor can be a great place to start.

Many people think that homes in foreclosure only exist in poverty-stricken or high-crime areas. This is not true. Especially with the market in a slump, many upscale homes are going into foreclosure, including beachfront homes or homes in affluent areas. This makes it an ideal time for the small foreclosure investor to purchase foreclosure property to live in, rent, or resell.

The Truth About Foreclosures

But the notion that purchasing a foreclosure is a very inexpensive or easy transaction is a myth. While some foreclosures sell for up to 40% below their market price, it is more realistic to expect the average foreclosure to sell only 5% or 7% below market. However, you can save more money if you purchase the property directly from the lender whose mortgage is in default. The lender will be more eager to sell, and may waive costs or offer a greatly reduced down payment.

The first thing you should do if you are considering buying a foreclosure is research, research, research. Many homes that go into foreclosure have not been properly maintained and may need a good bit of repair. Be aware of these extra costs that you may incur by purchasing a foreclosure. You should also research your state’s foreclosure laws that outline the process for you.

Bank Foreclosures Pose Less Risk

Purchasing a property owned by a bank is the safest way to go, especially if you do not have much experience in purchasing foreclosures. By purchasing from a bank, you can rest assured that you will not be responsible for taxes or tenants of the previous owner.

If you are not purchasing a foreclosed home to live in yourself, consider renting it out. This can have many advantages, including a reduced down payment required from the bank, tax deductions, and income to help subsidize the cost of the residence.

With the stock market taking a hit and most investment portfolios losing assets, the real estate market can be a safe investment for the future. If you are interested, do your research, check local foreclosure laws, and check online forums and message boards (such as REIClub) for advice and answers to common real estate questions.

Image Credit: eric__I_E, Flickr

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