Real Estate

Foreclosure Investment Opportunities

We will discuss real estate foreclosure investment opportunities for new investors. In addition, we will talk about alternative real estate investments and how to get started buying and profiting from real estate, using wholesaling, REITs, passive income and more.

Buying a foreclosed home may seem like a smart way to jump into the housing market cheaply, but buying a foreclosed home is a big responsibility and a potential financial risk, especially for first-time buyers. Furthermore, buying foreclosure investment opportunities can be risky. There has been a lot of research into buying foreclosures and buying homes in foreclosures, and there could be some serious pitfalls to overcome.

At the same time, you should visit the websites of real estate agents who have a database of foreclosures and hire a lawyer who specializes in foreclosures. You may also want to consider a foreclosure specialist, although you can also search online for foreclosures and properties for sale near you. Once you find an agent who wants to work on buying a foreclosure, ask them to look for properties that meet your criteria.  Using a professional can help you avoid mistakes when taking advantage of foreclosure investment opportunities

Real Estate Team   

When you are thinking about buying a bank-owned by foreclosure, your lender will require you to work with a real estate agent. For example, you will work with an agent who has specialized experience in selling foreclosures and homes. Furthermore, depending on the type of property you are buying a foreclosed home in, the bank may also require you to work a team. This team of real estate agents typically understand the process of buying and selling foreclosed homes from the banks.

Investing In Multifamily PropertiesAn experienced real estate agent can also help you assess the potential hurdles to buying a foreclosed home. If you are a first-time buyer of a foreclosure, you might want to hire a savvy real estate agent with experience in foreclosures. This will help you avoid some risk when buying foreclosure investment opportunities.

If not, a broker who works with a lender is used to buying foreclosures from lenders. If you are a first-time buyer of a foreclosure or even a new home, you should seek help from an experienced real estate agent as soon as possible. Getting help from a professional can help you avoid the pitfalls of foreclosure investment opportunities.

Working with a Professional 

If a foreclosed property seems like a good investment, a lender can help you buy it for investment purposes. Furthermore, buying a home can also be an opportunity for the owner – as a resident or investor – to make a traditional purchase. If you want to buy a foreclosed property, there are not so many traditional buyers you can compete with when you’re looking for a new home, especially if you’ve purchased a foreclosure.

It is a good idea to work with an experienced real estate agent who knows how the foreclosure process works. Take time to learn about the basics of home foreclosures and learn everything you need to know before getting started. For example, part of buying foreclosure investment opportunities is the unknown. Educate yourself so that you understand the process of buying a previously foreclosed property.

Types of Foreclosures   

There are several types of foreclosures, including those owned by the bank (Real Estate Owned), those facing foreclosure, law enforcement auctions and those owned by government organizations. While this article covers the basics of buying a previously closed property, there is much more to learn about the foreclosure process, including the title issues that caused the foreclosure of your home, the terms of the loan and the financial situation of you and your property. There is a lot of information about foreclosures, whether it is real estate owned or owned, mortgage interest, property taxes, property taxes, and much more.

What is a REO?   

“Real estate owned (REO) is property owned by a lender, such as a bank, that has not been successfully sold at a foreclosure auction. A lender—often a bank or quasi-governmental entity such as Fannie Mae or Freddie Mac—takes ownership of a foreclosed property when it fails to sell at the amount sought to cover the loan.” – Investopedia

A foreclosed home is a bank-owned property that is ultimately subjected to a foreclosure process in which the bank attempts to recover money for the property. These include houses bought at auction by banks or credit companies to be resold on the open market, also known as “property-owned properties.”

If the lender sells the property, the foreclosure is calculated so that anyone can buy it, but if the bank auctions it, it can be bought by another bank. Foreclosure can be either by a bank if it was purchased at auction or by another lender.

Competing Against Professionals

Since foreclosures tend to be picked up by real estate investors willing to pay cash, you shouldn’t be discouraged. Competition by professionals trying to buy these properties is common. Many lenders will help you find the right financing to buy a foreclosed home, and you can auction it off in the same way as any other home. You can also get financing for a short sale of the front-end home by buying it on the open market, where a cash payment is usually required. If you plan to renovate the property, try getting a government-backed FHA loan or home loan (HCL) to buy a closed home with the appropriate financing.

If you are buying a completely foreclosed home, you may need to do additional research to see what liens are still outstanding on the property. You don’t necessarily need a real estate agent to buy a foreclosure, but they can provide you with expert advice on foreclosures in your search area. When your house is auctioned, they look after your interests and help you negotiate half of them for you.

If you are worried about the risk involved with foreclosure investment opportunities, then perhaps you should consider wholesaling. Buying and selling properties through the wholesale market can be a lower risk option with some advantages.

What are Wholesale Properties?

In order to learn more about wholesale properties we must know who the wholesaler is. The wholesaler is the person who makes the deal. A real estate wholesaler looks for underpriced properties. Once the wholesaler finds a property, he or she contracts with the seller to buy it. Then the wholesaler finds a buyer for the property at a profit. The wholesaler then contracts with the buyer to complete the deal.

The advantage of buying wholesale properties is that it requires little or no money up front. Moreover, the wholesaler simply contracts with the seller with no money up front. An no money changes hands between the wholesaler and the seller. In addition, many wholesale contracts have clauses or caveats that allow the wholesaler to walk away from the deal if it doesn’t work out.

In a way, buying wholesale properties simply means that the person making the deal is an agent. The agent is independent of any realtor or broker requirements. In fact, real estate wholesaling doesn’t require any training or credentials. Anyone can be a real estate wholesaler.

Wholesale Properties Example

Person A has a property that he owns that he has been unable to sell. The property needs some improvement and Person A is unable to complete the improvements. Person B, the wholesaler, contacts Person A and makes him a cash offer to buy the property. Person A agrees to the offer of $50,000. Although the wholesaler (Person B) doesn’t have any money, he locks the property up in a contract with Person A. Person B then begins contacting potential investors and eventually finds a buyer (Person C) at a price of $65,000. Person B (the wholesaler) then assigns the existing contract to Person C. The wholesaler then nets a profit of $15,000 after the deal closes.

The Challenges of Real Estate Wholesale Properties

Finding and Executing Wholesale Properties Can Be Hard Work, Time Consuming and Frustrating

Finding wholesale properties can be frustrating. Getting leads for wholesale properties can require significant work, time investment and sales skills. Wholesalers can spend much of their time on the phone trying to make deals. You have to be prepared for getting doors slammed in your face, much like a telemarketer would.

Second, you need to understand a little bit about contracting law and real estate sales. You will be responsible for creating contracts between yourself and potential buyers and sellers. You will also be dealing directly with title companies.

Finally, there may be wholesale properties that you contract that don’t work out. After spending hours or days preparing a deal, writing up contracts and traveling back and forth to complete the deal, it may fall through. Sometimes investors get cold feet, buyers change their mind or other issues come up.

Other Real Estate Investing Options

Passive Income and Long-Term Income

Earning income in ways that very little or even no effort to maintain is called passive income. Moreover, with passive income, you earn money while you sleep or vacation. Although this idea may sound impossible, it is a secret that millionaires and billionaires have utilized for hundreds of years to become wealthy.

Common examples of passive income include owning commercial real estate investing rental properties. Of course, there are other examples of passive income, like stock dividends, high-yield savings accounts, annuities, and real estate investment trusts (REITs) as well.

Unfortunately, although passive income may seem like easy money, it is not. Generating passive income requires upfront work that lays the groundwork for future income. It is not a get-rich-quick scheme. In addition, it may require some additional work as you move forward. For example, if you own a commercial rent property, you will be required to pay for property maintenance, improvements, taxes and insurance on your investment.

To avoid risky mistakes when seeking out foreclosure investment opportunities, consider other, less-risky options. Some of those options include passive real estate income investing, long-term investing and REITs. More to come on those.

Long Term Investment Income (Portfolio Income)

Portfolio Income from long term investments is earned is made by capital gains. Assets can be examples of portfolio income. For example, if you own stocks, bonds, property, etc., you have portfolio income. When you sell your assets, hopefully they have increased in value while you held them. As a result, during the sale you incur capital gains.

For example, let’s say you bought $1,000 worth of stock in 2018. Now, in 2020, you decide it’s time to sell the stock. The stock is now worth $1,500 in the market. When you sell the stock, you will realize a $500 capital gain or profit ($1,500-$1,000 = $500). Capital gains from assets like stocks and bonds are how Wall Street traders make money.

Commercial real estate investing can also become portfolio income. Even if you own a commercial property for which you collect rent, you can still realize capital gains as well. For example, if you decide to sell your commercial real estate investment, you may profit from the sale (assuming the property is sold for more than you paid for it).

Real Estate Investment Trusts (REITs)

A REIT is a Simple Investment Like a Stock that Requires Less Capital and Less Risk

A REIT, or real estate investment trust, is a company that owns and manages real estate assets. REITs take advantage of special tax savings, allowing them to incur minimal corporate income tax. In addition, a REIT pays dividends, a type of passive income for commercial real estate investors. Historically, many REITs have paid increasing dividends each year, which means your passive income stream might grow with little effort. In addition, what is great about REITs is that unlike foreclosure investment opportunities, REITs have lower risk.

However, with any investment comes risk. Some REITs are inherently riskier than others. For example, a REIT fund that contains a large number of commercial real estate investing assets will be less risky than owning one REIT stock with less diversification.  In addition, determining which REITs to invest in can require significant time for a business analysis of each business’ records.

Another risk with REITs is reduced dividend income. Historically, during economic downturns such as the real estate market crash of 2008, REITs lose significant value. When this occurs, dividend income can be slashed or removed completely.

Rental Properties

Never before has investing in real estate been easier. Today, anyone can purchase investment houses for generating passive income. In addition, you can use the “BRRRR” method to leverage multiple properties so that larger passive incomes are generated from your investment houses.

You are probably wondering how the big real estate investors acquire so many properties in just a few years. Well, the secret to buying more investment houses in real estate is using the “BRRRR” strategy. So, what is BRRRR and how will it help in buying more investment houses?

The BRRRR Real Estate Strategy for Rental Properties

BRRRR stand for buy, rehab, rent, refinance and repeat. The BRRRR investment strategy has worked for many successful real estate investors. It allows you to build a portfolio of investment houses quickly. In addition, it requires using less personal capital. Let’s breakdown this step-wise process to understand the details and the order of this strategy.

Step 1: Buy Investment Property

Buy Undervalued Properties and Calculate Profitability Before Jumping In

Once you have narrowed down the kind of property you want to specialize in, such as apartments, duplexes or single-family homes, it’s time to buy. First, you will want to search for investment houses that are undervalued or significantly discounted. Many investors credit their profit margins to buying investment houses at prices that are significantly below the potential market value.

Next, after screening properties, you must do some calculations. One calculation that can help determine whether the investment houses you have chosen are profitable is the After-Repair Value (ARV). This will tell you what the investment property is worth after it has been rehabbed. If the cost to rehab a home is too high, profitability can be an issue. In turn, this can jeopardize your BRRRR strategy.

Finally, you will want to conduct a rental analysis. A rental analysis is a process of determining how much rental income the property is capable of generating. You will use this value in your overall profitability calculation for the deal.

Some other considerations: Don’t forget to include costs such as closing costs, rehab costs and the amount of cash that you will put down for financing. Many investors expect to use 20% down for investment houses.

Step 2: Rehab Investment Property

The next step in the BRRRR process is to begin repairing and renovating (rehabbing) the investment property. The object of the rehab is to quickly conduct repairs that will make the home appealing, safe and add value to the property. In addition, you want to rehab the property as quickly as possible. Furthermore, the quicker the process of rehab is complete, the quicker you can begin earning money from rental income.

Step 3: Rent Investment Property

After completion of the property rehab, it’s time to find a tenant for your property. A good tenant will consistently provide income (in the form of rent) for your investment. Furthermore, a good renter will take care of your property and not allow it to be damaged. Carefully determine what the market rental rate is for your area. In turn, this will ensure that you quickly find a renter and the property doesn’t sit vacant for months. In addition, you will want to properly vet potential tenants to make sure you find renters who are the best fit.

Step 4: Refinance Investment Property

Challenges of Working with Lenders, Obtaining Financing and Economic Cycles

The third “R” in the BRRRR process is refinance. After rehabbing the property and finding a renter, you can begin to look for a lender. The refinancing process means you will be working with a bank to borrow money based upon the remaining equity in the property. However, there are several things to know about refinancing investment houses.

First, banks typically only lend approximately 75% or less of the appraised value of the property in a cash-out refinance. The lender will consider your credit score when determining whether to lend money to you. In addition, you may need to demonstrate that the property is generating rental income and is legitimately appraised at the value you say it’s worth.

Dealing with banks can be a slow, frustrating process. Keep in mind that banks only lend money in situations where they feel that the money is secure. Furthermore, they don’t want to lose money or lend too much money out for an overvalued property. In addition, economic cycles can change factors such as interest rates and credit flow. For example, after the 2008 housing crisis, it was very difficult to obtain a loan from banks and the BRRRR method was not smooth.

Step 5: Repeat the Process

If everything lines up correctly, the BRRRR method will be a success. You will find an undervalued property, buy the property, rehab and rent it and then obtain financing that you can use to buy the next property. You can then repeat the process of acquiring investment houses. If the BRRRR method is successful, you will be generating a net profit each month.

Getting Started with Investment Houses

Buy Where There is Growth and Population Movement – The South and West United States

One rule that smart real estate investors use is to buy properties where populations are growing. Population growth and population movement tend to drive prices up in real estate markets. Basic economics tells us that when there are more people demanding housing, supply cannot keep up with demand. As a result, prices go up, which is good for landlords.

For many years, there has been growth in the South and Western United States. For example, a United States Census Bureau 2019 Article states that of the 15 cities in the US with the most growth, eight of them were in the South, six were in the West and one in the Midwest. Popular cities include places like Phoenix, Arizona, San Antonio, Texas and Jacksonville, Florida.

Foreclosure Investment Opportunities Wrap Up

Hopefully this article has helped you understand foreclosure investment opportunities, as well as options for other real estate investment. General investing in real estate is viewed as a solid investing opportunity for the foreseeable future. It can be a great way to earn money while investing little of your own cash. However, it is also time consuming, frustrating and requires some knowledge and patience.

Read More:

What Makes Buying Foreclosed Property Risky

USDA Property Eligibility Map

Best Place to Buy Rental Property

Why Saving Money is Important

One Percent Rule of Real Estate

Investment Houses

10 Things to Know Before Starting a Budget

Value Investing Books

Home Buying Power

Disclaimer: It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.