Foreclosed Homes vs. Pre-Foreclosed Homes: Why the Latter May Be a Better Investment

If you’ve ever considered investing in real estate, choosing to invest in pre-foreclosed properties is an ideal way to capture a home at a great value, often below appraised and market value. For many real estate investors, though, there is a common misconception among the investment market, primarily the result of misunderstood or miscommunication through “get quick” schemes.

To invest in the real estate market, purchasing distressed or pre-foreclosed homes, it is important to use some very basic and general common sense approaches, avoiding those sales techniques which appear to net financial wealth overnight. First, it is important to know when the best time to purchase the property might be as, in many cases, the opportunities may exist before the home even reaches foreclosure status.

For most real estate investors today, there is a common consensus that pre-foreclosure is the ideal time to buy an investment property. Because mortgage companies and lenders are not in the home ownership business, the lender will often work with the anticipated investor in an effort to keep the home away from foreclosure.

Because, as an investor, you can purchase a pre-foreclosure home for pennies on the home equity dollar, this makes for an ideal real estate opportunity. Also, with a pre-foreclosure home purchase, as the investor you will have the opportunity to inspect the property prior to purchase, unlike purchasing the home for a foreclosure auction in which no inspection is permitted.

Because inspection is not permitted on a foreclosed property, there have been many instances where homeowners insurance is virtually impossible to secure or the property may be uninsurable. With pre-foreclosed properties, the opportunity to obtain that pre-sale inspection will ensure your real estate investment is insurable.

With pre-foreclosure property you will also have the opportunity to determine who is presently residing in the home and make arrangements, involving dates, for the current occupants to vacate the premises. Unlike foreclosed properties where tenants may occupy under hostile conditions, resulting in legal costs to secure their removal.

As with any investment process, the key to your successful outcome will lie in the education about the process before proceeding. When considering real estate as an investment, most savvy investors will agree that a pre-foreclosure property is often a better buy for the investor than a property that has already completed foreclosure. As always, discuss these options with a mentor who is experienced in real estate transactions and know your property well.

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