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Buying in the Foreclosures Market is Hard

CNNMoney had an article a month ago about how foreclosures work and if you read it and take away nothing else, take away the fact that “investing” (more like speculating) in the foreclosures market is extremely difficult. It’s extremely difficult and novices will likely lose money if they try to learn how to invest in foreclosures in this climate.

My personal belief is that in times of prosperity, even the fools look smart because everything is an easy play. The real estate market experienced explosive growth for many years and so novice real estate speculators were able to make some mistakes and still walk away with a profit. Now the margins are tighter, the opportunities are fewer, and mistakes that would’ve resulted in modest profits now see a hint of red. So, if you’re brave enough to try your hand at foreclosures (which is like real estate plus a heavy dose of emotion), plod onward.

Default: This stage is what immediately precedes an actual foreclosure and is called the pre-foreclosure stage. The owners have already defaulted and the home just hasn’t been foreclosed on yet – you can find these in the newspaper and contact owners directly. CNNMoney warns that if the house is discounted 20-40% then it likely needs work.

Auction: Do you see the sharks? This is where the house is put on public auction and you face a lot of hurdles and competition. Read the article because it goes into the various differences, based on who owns the loan, between the auctions but be prepared to have 10-20% of your bid that day and the rest within 30 days!

REO: REO stands for real estate owned and it’s what happen when no one bids on it at auction. “This may be the best chance for “mom and pop” to buy a foreclosure. Experts suggest that when a lender buys a house you want, quickly send an overnight letter to the bank president offering to pay their bid price for the property. The bank may want a quick turnover.”

Finally, their last tip:

Some of the best foreclosure deals may be had through governmental or quasi-governmental agencies such as Fannie Mae, Freddie Mac, HUD, and the VA. Listings are numerous and available on their Web sites, but the properties they feature are often less upscale. Web auctioneer eBay lists thousands of foreclosed homes, too.

via Yahoo Finance [3].