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 >>
Related Articles
  1. Investing

    Don't Get Trapped in a Zombie Foreclosure

    Understand how foreclosures work and you can avoid the disastrous consequences of having a zombie foreclosure.
  2. Investing

    Avoiding Foreclosure Scams

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

    Saving Your Home From Foreclosure

    Learn the tactics you can use to prevent your home from being repossessed.
  4. Managing Wealth

    Investing In Foreclosures Not A Get-Rich-Quick Venture

    Investing in this kind of real estate takes capital, time and careful planning.
  5. 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.
  6. 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.
  7. 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.
  8. Investing

    Buy Your Next Home From Uncle Sam

    As a result of rising foreclosures, some Americans will buy their next home from the U.S. government.
  9. 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.
  10. Investing

    5 Ways To Avoid Foreclosure

    If you go into default on your mortgage payments, don't worry, there are still ways to save your home.
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. Foreclosure Buyout

    A refinancing program that allows a homeowner to avoid foreclosure ...
  5. Foreclosure Crisis

    A period of unusually high home foreclosure rates that caused ...
  6. Judicial Foreclosure

    Foreclosure proceedings in which a mortgage lacks the power of ...
Hot Definitions
  1. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  2. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  3. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
  4. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  5. The Bernie Madoff Story

    Bernie Madoff ran a multibillion-dollar Ponzi scheme that is considered the largest financial fraud of all time.
  6. Pyramid Scheme

    An illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, ...
Trading Center