Property Investment with Foreclosure Loans

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Property Investment with Foreclosure Loans

Thursday, April 17th, 2008 Subscribe To Our Feed

Once someone’s property goes into foreclosure, it will be difficult them to get a loan to save it. However, this is how many investors are able to make a profit. By finding such properties and securing a foreclosure loan before the auction, they can bid on and purchase property based on the value of the promised lending.

Typically, properties sold at auction will be sold for at least 66% of their appraised value. Securing foreclosure loans for that amount should not be difficult, providing the borrower has a credit rating sufficient to obtain the loan. This is because the borrowing will be far less than the property’s value so the lender's risk and potential for loss is minimized. For example, properties selling at 66% of their appraised value means the lender will see at least 30% in equity once the sale is finalized,

Foreclosed Property Investment Example

A parcel of land valued at $30,000 is sold for $20,000, financed through foreclosure loans and the new owner uses the $10,000 equity on a loan to build a new house. If the house costs $100,000 to build and it can be sold, with the land for $175,000 the builder can conceivably see a profit of $45,000 with no expenses coming out of his pocket. After three or four such deals, he can now buy the land, build the house without borrowing money and be on his way to riches.

Saving Even More By Buying Before The Auction

By watching the legal notices, a person can learn about homes in the early stages of foreclosure and approach the landowner about selling the property before it is repossessed for auction. Considering the equity in the land, the owner may be willing to sell for the balance owed to the lender, plus half the equity for example. This allows them to move out with a few dollars, their integrity and no blot on their credit record. This type of purchase through foreclosure loans is generally easy as the lender does not have to go through the entire process and they are receiving what they are owed.

This type of sale can generally be accomplished more easily once the owner receives a demand for payment, which states the amount the lender is demanding in order to halt foreclosure proceedings. Faced with the bank knocking on the door and the possibility of their name being ruined by a foreclosure, many are willing to give new buyers time too seek foreclosure loans in order to pay off the bank and walk away.

Not everyone can wait for approval of foreclosure loans and even though a pending sale is in the works, if the loan does not go through in time the foreclosure will proceed anyway and they will have nothing to show for their efforts.

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