Five Tips for Buying a Foreclosure Property Below Market Value

By Jim Saccacio, RealtyTrac Chief Executive Officer

If you feel like the escalating costs of real estate have priced you out of the market, think again. It may be time to investigate the vast opportunities available in the foreclosures market.

For people willing to do a bit of homework, the foreclosure market offers some of the best opportunities available in real estate today. Experts point toward significant growth in available foreclosure properties, so there’s never been a better time to line up your resources and educate yourself about this previously hidden market. It’s not unusual to save from 10 to 30 percent of the market value on a foreclosure property, and certain properties offer savings of 50 percent or more! There really are bargains out there. You just have to know where to look.

Web-based services such as RealtyTrac give consumers access to foreclosure and pre-foreclosure information that was previously available
only to professional real estate brokers and investors. Today, homebuyers can use these services to identify and research potential home
purchases, as well as to find the tools and professional resources they need to help them close the deal. RealtyTrac, which provides all
the foreclosure data for both MSN House and Home and Yahoo! Real Estate, has already compiled a list of over 550,000 foreclosure
properties across the country.

The keys to a successful foreclosure property purchase are diligence and patience, along with taking an educated approach to investing in this market. RealtyTrac CEO Jim Saccacio offers five tips to help you close a deal on a foreclosure property:

1. Learn about the different types of properties and the foreclosure process.

Not all foreclosures are the same! You need to educate yourself on the difference between the three basic types of properties, including notice-of-default (NOD), notice of trustee sale (NTS), and real-estate-owned REO, as well as the positive and negative aspects of buying at each stage of the foreclosure cycle.

As a rule of thumb, the best savings can be made at the pre-foreclosure stage, where home owners can avoid a foreclosure and lenders can save the time and cost involved in going through the process. Another critical point in the process is immediately prior to the auction date, when all parties might be most open to a last-minute solution.

2. Secure financing early

It’s important for a buyer to be pre-qualified before engaging in discussions with a seller. This ensures that the buyer is in a financial position to purchase the property, and is in the strongest possible position to negotiate.

3. Engage a real estate agent as a “buyer’s representative”

There’s a distinct difference between a buyer’s and a seller’s representative. Buyer’s representatives have the home buyer’s interests at heart, and are charged with finding the right property and negotiating the best price for their clients. Picking the right real estate agent will make your life much easier. Ideally, select an agent who specializes in the foreclosures market and has specific experience in REO properties.

4. Do your homework

Purchasing foreclosure properties is somewhat more risky than buying traditional real estate properties. But, with that risk comes reward in the form of much higher potential savings. With the right examination and due diligence, buyers can significantly reduce the risks. As with any purchase, timing is everything! But, it makes sense to give any property under consideration a thorough examination, including determining its condition and value, finding out the amount in default and the remaining loan balance, and running a legal investing report to make sure the property is free of any financial liabilities. Of course, it never hurts to foster a positive relationship with the seller!

5. Make a realistic offer

If you want to be taken seriously as a buyer, you must be realistic when preparing an offer. Lenders aren’t likely to give properties away, particularly in a real estate market where prices continue to rise. Additionally, homeowners in financial distress may be difficult to deal with, particularly early in the foreclosure process. An educated buyer—one who knows how much is owed on the property and what its market value is—can usually come up with a realistic offer; one that offers significant savings, while meeting the requirements of the lender.

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If you’re new to the idea of investing in REO property, as is likely to be the case if you’re reading this article, you may still be wondering exactly what these properties you’ve heard so much about are and how exactly they’re a good value for the property investor. You might also want to know if this is a type of property investment which is suitable for novice investors. If these are the questions on your mind, then this article is for you. We’ll cover what a REO property is, how to invest in these properties in bulk and hopefully by the time we’ve finished, you’ll have a good idea of whether these investments are right for you.

So without any further delay, let’s get to the first question.

What Is REO Property?

In case you’re not familiar with the term, REO stands for Real Estate Owned. This is property which has reverted into the hands of a lender; this is almost invariably a bank, credit union or other financial institution following an unsuccessful attempt to sell the property at a foreclosure auction. The banks or lenders then attempt to sell these properties as quickly as possible, since as far as their ledgers are concerned, foreclosed property is a liability, not an asset. Of course, banks aren’t in the real estate business in the first place, so it’s in their best interests to rid themselves of this property.

OK, So What’s Bulk REO Property?

Larger financial institutions especially are often left with a large number of REO properties on their hands, especially now in the wake of the credit crunch and the waves of foreclosures which preceded it. Banks are eager to pass on these properties to buyers, often selling them for greatly discounted prices. Where the idea of bulk property comes into the picture is when real estate brokers and investors will make offers to these institutions to purchase several properties at once for an even lower price.

Why Is Bulk REO Property A Good Investment?

Since the banks need to get rid of these bad investments to get them off of their books and since the housing market is still somewhat soft, there are some excellent values to be had for the forward looking investor or investors who are interested in making a rental income off of these bulk REO properties. Of course, given the very low prices at which these properties can be purchased in bulk, investors can still make a tidy sum by selling these homes even as-is; many REO properties tend to be in need of a little fixing up, but at their price they’re still most often a great bargain.

Are Bulk REOs Something Which Newcomers To Property Investment Should Involve Themselves With?

The answer I usually give to this question (which I’m asked quite a bit) is no – unless these investors are looking to make money. Bulk REOs represent an incredible investment opportunity and there are quite a few novice real estate investors who are already making a substantial amount of money from these investments; and others who are holding on to these properties, waiting for market conditions to improve before selling for even larger profits. Whether you’re an old hand at real estate or you’ve never purchased an investment property before, bulk REOs are something which you should at least consider investing in.

So How Do I Find These Bulk REO Properties For Sale?

That’s often the most challenging question, especially for people who aren’t experienced in the real estate market. There are several ways to go about it, most involving a lot of research. The important thing to remember about real estate investment, whether we’re talking about newly built commercial property or bulk REOs is this – it’s a numbers game. If there was one thing I want people to take away from this article it’s that.

You need to make lots of offers and deal with lots of different banks and other lenders, brokers or asset management personnel and do some investigating to identify properties which interest you. Especially if you’re new to property investments, you may be better off dealing with a reputable broker who has contacts with lender asset managers and is experienced in handling bulk REO purchases.

Just do a little research ahead of time to make sure you’re doing business with someone who’s going to make sure that you’re treated fairly in this transaction – other than that, I hope I’ve answered some of your questions about bulk REO investments and I wish you the best of luck and profitable investing!

Bulk REO Secrets