Many prospective real estate investors have thought at one time or another of purchasing foreclosure properties and then selling it for a major profit. However, the ins and outs of investing in foreclosures are a little more complicated than that simplistic description. There are real estate investment moguls who have made this technique work for them to the tune of millions of dollar, but they also put in enormous amounts of work and typically have quite a bit of capital or investor backing money. There are some major areas of knowledge in which potential foreclosure investors need to be well-versed.
One of the most important elements of investing in foreclosures is understanding the market value of the property being considered. The amount that an investor can get in resale will determine what investments make since economically in the purchase of the property, improvements or repairs, and other fees. It also will dictate a timeline, how much time can be invested in the project. In a real estate market that is slowly recovering from an economic downturn, the amount of time it may take to sell a property is an important consideration. The amount of time an investor has a property on the market will cost money in utilities, staging, mortgage payments, taxes, and more.
Another consideration when investing in foreclosures is the legal ramifications. Every state has different laws and regulations that apply to the purchase and sale of foreclosure properties. Investors need to be fully cognizant of the procedures, allowances, permits, and bureaucracies that must be dealt with in order to legally operate in this real estate investing niche sector. Similarly, the investor needs to know how to access records on the proposed property, such as possible liens, property tax defaults, partial interests, and other problems that could cause problems in a contract for sale process.
Having enough time and money to invest in locating information, spending time finding properties and researching them, purchasing properties, improving them to bring them up to market value, and put them on the market until sale is complete. Investing in foreclosures requires an enormous time and money commitment. Properties are often run down or even in desperate need of repairs. There could be major problems in the foundation, plumbing, electricity, roof, or support structure that could cost an investor thousands of dollars. Assessing a property to understand the improvement and repair needs either requires extensive experience or a trained building inspector.