Kentucky Foreclosure Investing
When looking into foreclosure and investigating its nature, there are several different points of view that we can take. The most popular standpoint is that of the homeowner who is at risk of losing their home. I defend these foreclosures but there are no free homes. You can catch up a mortgage or the property taxes. But occasionally a mortgage holder will make a mistake like waiting too long to foreclose and then the note violates the statute of limitations.
The second and positive side that we can view the situation from is investors who acquire foreclosed homes at the commissioner’s sale. They increase their net worth by buying the properties at a low price and then selling at a higher price. Here is the list of foreclosed homes for sale in Jefferson County. Every county has a commissioner who sells foreclosed homes.
Regardless of whether you are currently in the shoes of either, it is interesting to see how these different positions act and what their advantages and disadvantages are. If you’ve spent some time on our website, chances are that you are already quite familiar with foreclosure from the point of view of the homeowner. However, to make the process of foreclosure more understandable and comprehensible, today we will look from a different perspective – that of investors.
For starters, we will look at what foreclosure investing actually means, what its benefits are and how investors usually find foreclosure homes to take advantage of.
Foreclosure investing – what is it?
To quickly recap, a foreclosure takes place when a homeowner is unable to continue making regular mortgage payments and the judge orders a sale of the home. This can happen as a result of poor financial planning, or from unexpected changes in the financial situation of an individual or a family. Often this is due to medical problems, divorce, discharge from employment or death in the family.
When a house is officially foreclosed, the lender or the bank often buys the property for 67% of the value to avoid redemption. The bank or purchaser quickly puts the property on the market for sale in order to make a profit. The bank hopes to make up for any losses incurred as a result of the defaulted mortgage. A natural next phase of the process is for a new buyer to show interest in the given property. This can be an ordinary person looking for a home through an agency or can be an experienced foreclosure investor who is looking to make extra profit from the property.
If the loan was an FHA or similar government loan it is often listed for sale to consumers before it is offered to investors.
Requirements for foreclosure investors
There are a number of criteria that the new buyer must cover and one of them is that they must pay for the property in cash at the commissioner’s sale. Investing in a foreclosure home involves a lot of available capital. In the case of most investors, they find a source of financing who shares in the profit for providing the cash. The finance angel takes a security interest in the property and is paid at the closing when the investor sells the property.
Foreclosure investors money by spending to purchase the home and by making the necessary repairs to quickly sell the property or rent the property. It is nearly impossible to start as a foreclosure investor unless you already have a stable financial source, which allows it.
Foreclosure investing means the right homes
The important part to understand about foreclosure investing is spending money on the actual property is not the only investment that needs to be made. In order to resell the property and make a profit, investors must often renovate or fix the property. This is mostly done with the aim of increasing the new sales price. Previous homeowners rarely take proper care of the property while they are not making payments. They often leave it damaged or in a poor condition which is why it sells at 70% or less of its market value.
Once the property is ready to be placed on the market once again, there are additional costs for selling it. This may happen through a licensed real estate agent or through the investor’s company. Looking at the full picture, we can see that the foreclosure investor has to either sell or rent to make money. Making a profit is not guaranteed and it depends on the investor’s ability to make calculations and ensure a wider gap between the purchase price and selling price.
In some cases, making a profit from a foreclosed home is just not possible. It is very important to make a realistic judgment about the property’s value and see the items which lower value. It is always advisable to work with an expert in the field to ensure that the investor is well-informed.
What are the benefits of investing in foreclosed homes?
There is a reason that so many investors orient their investment efforts around foreclosures. It is a great opportunity to make extra profit, especially if you already have available funds. Let’s go through a list of main benefits when it comes to investing in foreclosed homes.
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A specific market –
Every investor has an exit strategy and the more specific it is – the better. Experienced investors know that focusing on a niche market often reaps better results. This is mainly due to the fact that it is easier to standardize processes, stay in control, and gain valuable experience faster when you are working with a niche product or service.
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Deals you don’t want to miss –
There are several phases of foreclosure and one of them is the pre-foreclosure stage. Homeowners can be eager to find an exit strategy from their mortgage payments and are looking to sell the house. As a result of the eagerness and the stress accumulated from the process, homeowners normally announce lower prices. The homeowner often wants to quickly get rid of the property and get relieved from payments. This is a great opportunity for investors to take advantage and make a move. Not everyone wants to sell though. Some people just want to stall the foreclosure process as long as it is possible. The longest I have seen was over 16 years. They were never evicted during that time and didn’t make payments.
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Equity Spreads –
Pre-foreclosure normally allows for larger equity spreads as usually, banks are not interested in taking back a property unless they have to. This gives investors and buyers the advantage of requesting larger discounts.
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Stimulated Sellers –
The art of negotiation states that the more motivated a seller is – the higher the chance of them making a sale. That may not necessarily be of the highest possible value. In the case of a foreclosure, homeowners are sometimes in a rush to sell their property. Negotiation will be much easier from the standpoint of the investor. In a normal and humane situation, it is best if the investor appreciates the difficult time that the homeowner is currently in. Both sides manage to negotiate a decent outcome, with no excessive losses for either side.
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Leverage –
There is a lot of room for leveraging when it comes to foreclosure investing. In some cases, the investor is able to help the homeowner thanks to their experience, position, and financial stability. For example, some forms of negotiation include an agreement that if the homeowner gives a discount. The he investor will, in return, help the homeowner move, will rent to the homeowner, or shorten their closing window. There are a number of available solutions that can be reached as long as communication is transparent.
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A fast process of purchase –
It is usually easier to work with homeowners selling a foreclosure home and if the price is right, the sale takes less time, giving quicker results.
How do investors find foreclosed properties?
Making discoveries about foreclosed properties will depend on the location. Where the investor is based or is looking to make the investment will control where he can look. Some of the popular ways of sourcing information about such properties are to do online searches in directories like Zillow.com. Zillow provides listings of bank-owned properties. In addition, you can request information from your local MLS to get recent data on foreclosed properties. Alternatively, you can view the list of commissioner’s sales. Some people also publish lists of the foreclosures as they are filed. You can also do this research yourself. You can research the weekly foreclosures filed at the courthouse. This gets the first public record listings of individuals who are not making mortgage payments. They are being sued and are in default.
Once the investor has gathered the necessary information, it is time to get in touch and start the communication with the homeowner. Find out whether it is the bank or the actual homeowner who announced the foreclosure. Whether they still have control over their property. It is important to understand who it is that you will be in contact with regarding the acquisition. In most cases, purchasing a home during its pre-foreclosure phase is more beneficial both for the investor and the homeowner.
In conclusion
Property investing is certainly no easy task and investing in foreclosed properties is not any different. Yes, the rewards can be highly lucrative. But it is important to remember acquiring the necessary information at the right time is of crucial importance. Selling the homeowner the idea of moving out becomes much harder after he has spoken to ten previous people. Many of whom offered “foreclosure help but instead were attempting bad deals.
We hope that this road down foreclosure investing has been interesting. Hopefully, it has helped you better understand the other side of foreclosure – that of the investor.