Pre Foreclosures - real estate investing in foreclosures

Pre Foreclosures can be a big part of real estate investing and a good way to build your portfolio or cash for buy and hold. Learn what they are, how to find them and how to make money investing in preforeclosures.

In order to make money in the preforeclosure business, you really have to know what you are doing - or at least affiliate yourself with a seasoned real estate investor, or group of investors, who do.

Anyone can learn this business and it is lucrative. But investing in pre foreclosures is both complex and time consuming - particularly in the beginning. From personal experience, I can tell you that you will save a lot of time and money if you get formal pre foreclosure training early in the game, or hook up with a seasoned investor who is good at negotiating short sales and do deal splits. You find the deals and get the paperwork done and they put up the money and/or handle the negotiations.

What Are Pre Foreclosures?

When a home owner stops making payments on a home loan, that loan becomes a 'non-performing' asset. Lenders have limits on the total percentage of non-performing assets they can have on their books at any given time.

It usually takes a few months (this time varies from state to state according to individual state law) before lenders actually start the foreclosure. The lender initiates the process by formally notifying the homeowner to bring the loan current in a specified period of time, or the house will be sold at auction to satisfy the debt.

So, the term 'preforeclosure' refers to the period of time that a house is in default prior to being sold at a foreclosure auction. Technically pre foreclosures are loans in default from the time where the homeowner stops making payments:

until the house is sold at a public foreclosure auction or

until the homeowner brings the loan current or

until a real estate investor buys the house, effectively stopping the foreclosure process and auction from taking place.

An investor can buy a preforeclosure property different ways depending on the overall loan to value, the existing equity in the house, and what the seller wants to get out of the transaction.

Different ways to invest in pre foreclosures

An investor can get into a preforeclosure transaction by:

taking over the existing debt and bringing the loan current. Then find a new buyer and either lease option the property to the new buyer or sell to them with new financing.

taking over the existing debt and negotiating a short sale with the lender where the lender agrees to accept less money than is owed on the property. Then the investor can either buy the house to hold, fix up and/or sell - or the investor can resell the property to a new buyer who cashes out the existing debt with a new loan.

Or through variations and combinations of the above...

To start in this business, you need a list. Alternatives include hiring a researcher (someone who goes to the courthouse for you) to generate your own pre foreclosure lists or you can subscribe to an online pre foreclosure listings service. Get more info about foreclosures.

You can learn these mistakes on your own which is a good way, but not often the best use of your time. Or you can study the pitfalls to avoid under the guidance of an experienced mentor or investor/partner to minimize them. I recommend the latter - although I am stubborn and have done both.

Getting trained right in the beginning can make a big difference. The aspect I have found most lacking in pre foreclosures training in my own experience has been the follow through from the "mentor/teacher" - or the lack of it. Be certain that your guide stays with you long enough to get you on your feet. Otherwise you are wasting your money.

Be prepared to study a great deal and to get to work. The best way to get good at the foreclosure business is to do some deals and learn firsthand why the training you received was good or not.