A:

Foreclosure investing involves the purchase of houses that are somewhere in the process of being confiscated by lenders due to the owner's failure to meet mortgage obligations. The investor buys the house with the hope that it can be bought below market value as a result of the bank or lender seeking to move it quickly and recover funds.

Foreclosure investing, despite the promises of late-night television infomercials, is not for the inexperienced. Most of these transactions are done "as-is" and with no warranty. Often, homes are sold at auction — a process that prevents prospective buyers from completing full property inspections. Therefore, there is no recourse for buyers who end up with houses that reveal dilapidation or hidden damages after the papers have been signed.

Additionally, it is virtually impossible for foreclosure investors in a tight lending market to purchase properties with no money down. More often, an investor is required to put up a down payment of 10-20% to secure a loan. The interest on these loans notoriously eats away at an investor's profits when the house does not "flip" as quickly as intended.

Considering that plenty of highly experienced foreclosure investors conduct business in larger metropolitan markets, it is also rare to find a truly easily salable home at a deep discount. During stable economic periods, the typical discount from market price on a foreclosed home usually will not exceed 3-10%.

(To learn more about this topic, read: Foreclosure Investing Not A Get-Rich-Quick Venture, Avoiding Foreclosure Scams and Foreclosure Opens Windows For Investors.)

Ken Clark answered this question.

RELATED FAQS
  1. How Many Mortgage Payments Can I miss Before Foreclosure?

    The status of your lender and the condition of your local housing market are some of the factors that determine how many ... Read Answer >>
  2. My mortgage payments are no longer affordable; is there anything that I can do to ...

    The most important thing for you to remember if you find that you may not be able to make this month's mortgage payment is ... Read Answer >>
  3. Can FHA loans be used for foreclosures?

    Learn how to get great deals on foreclosures and how you can finance renovation costs using federally-insured FHA loans with ... Read Answer >>
  4. What is PMI, and does everyone need to pay it?

    Also known as "Primary Mortgage Insurance," PMI is the lenders (banks) protection in the event that you default on your primary ... Read Answer >>
  5. How does a decline in housing prices affect the banking sector?

    Learn about the affects on banks when housing prices go down, including loan delinquency rates, mortgage foreclosures, and ... Read Answer >>
Related Articles
  1. Investing

    Helping Clients Navigate Short Sales And Foreclosures

    Both buyers and sellers can benefit from a real estate professional experienced in dealing with short sales and foreclosures.
  2. Investing

    Avoiding Foreclosure Scams

    If you want to save your home, avoid bogus offers and take matters into your own hands.
  3. Managing Wealth

    Investing In Foreclosures Not A Get-Rich-Quick Venture

    Investing in this kind of real estate takes capital, time and careful planning.
  4. Investing

    Saving Your Home From Foreclosure

    Learn the tactics you can use to prevent your home from being repossessed.
  5. Investing

    Top 6 Scariest Neighborhoods For Homebuyers

    If you're looking for a spooky spot this Halloween, these communities boast the most horrifying foreclosure rates in the country
  6. Investing

    The Pitfalls of Buying a Foreclosure House

    Find out if the house you're eyeing is really a good deal.
  7. Investing

    What Is A Short-Sale Property & How Does It Work?

    A short sale is an alternative to foreclosure whereby indebted owners get permission from a bank to sell their house for less than amount of the mortgage.
  8. Investing

    What Homeowners Need To Know About Zombie Titles

    Understanding how the foreclosure process normally works - and how it dysfunctions in today’s market - will help you avoid becoming a victim.
  9. Investing

    How To Delay Foreclosure

    While losing a home can be a traumatic event for you and your family, it's best to find ethical means of delaying or avoiding foreclosure, even if it takes more time.
  10. Personal Finance

    Avoid Foreclosure: How To Handle An Underwater Mortgage

    Foreclosure is the biggest fear of any struggling homeowner. These tips just might save your credit rating.
RELATED TERMS
  1. Foreclosure Action

    The legal proceedings initiated by a lender in the case of mortgage ...
  2. Voluntary Foreclosure

    A voluntary foreclosure is a foreclosure proceeding that is initiated ...
  3. Foreclosure Filing

    The initial legal process of selling a mortgaged property that ...
  4. Serious Delinquency

    When a single-family mortgage is 90 days (or more) past due and ...
  5. Zombie Foreclosure

    A situation (or a home in this situation) that occurs when a ...
  6. Foreclosure Prevention Act of 2008

    A housing act that is designed to help families keep homes that ...
Hot Definitions
  1. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  2. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  3. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  4. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center