Foreclosures: deal or no deal?

November 2, 2007

It can take plenty of time, money, and hard work-and a strong stomach-to profit from others' misfortune.

Key Points

"Attend our upcoming foreclosure seminar for the low, low price of $1,500-a savings of $2,000 off the regular price! Start earning big profits TODAY!"

You may have heard words like those while dozing in front of the TV, and maybe you've thought about dipping a toe into the foreclosures pool. How hard can it be to slap some paint on an old house and flip it for a quick profit, right? Well, pretty darn hard-and that's coming from people who do it for a living. But for a doctor with the right temperament and some disposable cash, investing in foreclosed properties can be viable and lucrative. We talked with the experts to help you decide if it's right for you.

Why foreclosures now?

Just because there are plenty of these properties doesn't mean there are plenty of great deals to be had. This is hard work, and it'll take up loads of time. That's not to say you can't get lucky and find a great investment property. True tales abound of investors buying at discounts on market value of 50 percent or more, then selling for thousands of dollars profit after just a few months' work.

Still interested? Here's what's involved.

Dealing directly with the owners

There are three different ways to buy distressed properties, each with its own set of pros and cons. When a borrower defaults on his or her loan payments, the lender files a public notice that appears in the newspaper. The borrower then has a grace period determined by state law, usually several months, to pay off the default and stop the foreclosure process.

During this time, you can approach the homeowners directly to work out a deal. You could take over their monthly payments, or simply buy out their mortgage, depending on what their lender allows. The possibilities at this stage are limited only by your imagination.

Besides dealing with the owner, you'll have to research the title and liens, contact the taxing authority for any overdue payments, and inspect the property before buying. But you can obtain full title insurance and use an escrow company to manage the transfer of money and property ownership. For help with all the details involved in these chores, as well as general and state-specific foreclosure information, visit http://www.foreclosures.com, http://www.realtytrac.com, http://www.johntreed.com, and http://realestate.yahoo.com/foreclosures.

While the potential discount of going direct to the owner is significant-20 to 40 percent off the property's market value-so will be your time and effort. And then there's the emotional aspect of the foreclosure process to deal with. John T. Reed, publisher of John T. Reed'sReal Estate Investor's Monthly, says, "The crux of pre-foreclosures is that you sit down across the kitchen table from a couple who are having the worst time of their lives, and persuade them to sign papers that'll transfer their last remaining valuable asset to you."