What is foreclosure investing?

By Ken Clark AAA
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. Oftentimes, 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.)

This question was answered by Ken Clark.

RELATED FAQS

  1. For investors, what are the alternatives to owning physical gold?

    Learn some of the primary alternate ways that someone can invest in the gold market besides simply purchasing physical gold ...
  2. Which emerging markets should an investor consider for exposure to the metals and ...

    Discover the world's top emerging market countries for investing in the metals and mining sector and what mined resources ...
  3. How are blue-chip stocks similar to mutual funds and exchange-traded funds (ETFs)?

    Understand the primary differences between making investments in blue-chip stocks, mutual funds and exchange-traded funds ...
  4. What are some of the most popular mutual funds for investing in the metals and mining ...

    Explore some of the many mutual fund options available to investors that focus on holdings in the metals and mining sector, ...
RELATED TERMS
  1. Gentrification

    Gentrification refers to when a neighborhood or city undergoes ...
  2. Home (legal definition)

    A home is the place where a person has their permanent primary ...
  3. Real Estate

    Land plus anything on it, including buildings and natural resources.
  4. Total Annual Loan Cost (TALC)

    The projected total cost that a reverse mortgage holder should ...
  5. Discounted Payoff

    The repayment of a loan in an amount that is less than the principal ...
  6. Business Broker

    A professional who specializes in the purchase and sale of companies. ...

You May Also Like

Related Articles
  1. Professionals

    Are Alternative Mutual Funds, ETFs Right ...

  2. Investing

    Is the Best Plan for Pot Investing 'Wait-and-see?'

  3. Stock Analysis

    How Are Interest Rates Affecting Annaly ...

  4. Options & Futures

    Give Yourself More Options With Real ...

  5. Investing

    Ready To Invest In Financial Leverage ...

Trading Center