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Whether you're looking to flip a home, buy into a neighborhood you couldn't otherwise afford or planning to rent the home, you, like these big companies, must have heaps of cash on hand.

Smart Ways To Profit From Foreclosures

There are properties that can be turned within a few months, but the overall market is still slow. Go to the county assessor's office and study recent sales for price-per-square foot and time spent on market to determine what sort of price you can expect at resale. Be conservative. Make sure that your endeavor is still profitable if you incur two to three years of carrying costs and depreciation.

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It's also crucial to remember that bad loans that plagued speculators and unprepared borrowers don't simply disappear when distressed owners sell their properties. Unless the property goes through foreclosure auction and becomes bank-owned, outstanding liens and fees are simply transferred to the new owner. If you plan to buy out of pre-foreclosure, make sure the property has a clean title; otherwise you'll just be trading places with the distressed homeowner. In such situations, outstanding fees, second liens and the like aren't automatically washed away.

It isn't always the case that pre-foreclosure homes lack clear title, but once a home goes into the auction on the courthouse steps and is bought back by the bank, it is clear of all the bad loans that got the original owner into trouble. Making sure a home has clean title is a critical first step to a sound investment.

What is a foreclosed home?

It's also important to note that you make money on a foreclosure the moment you buy the home. You can make a good return if you're selling in a sinking market, for example, by unloading a home at 70 cents on the dollar, if you bought it for 50 cents on the dollar. In heavily hit foreclosure areas, banks are juggling so many properties that offers on distressed homes, out-of-business homebuilders' developments and excess inventory are being entertained at under-listing prices.

Are there many foreclosed houses in the same area? This scenario sends many negative messages to potential buyers about the neighborhood, the city, and the market. Until all the houses on the block are sold, there is going to be one foreclosed house bringing down your property value. Run a quick zip code scan on a trusted website such as Redfin or Zillow to see how the area is doing. Since the house I bought will be with me for at least half a decade, I was not too worried to see four more houses on the block in foreclosure.

I believe five years is ample time for prices to drop and come back up again, guaranteeing that my investment is safe.

How to Buy a Foreclosure Home or Property From a Bank – 5 Questions to Ask

How much money will you have after the purchase? Be prepared to spend a lot of money after your initial purchase to fix the house to meet your standards. Even after a home inspection , you are going to find things that bother you and need to be changed. If possible, ask the bank to cover the escrow fees or any of the other real estate fees or mortgage fees so that you have more cash on hand. Personally, I have spent thousands on various home improvements. I was actually pretty surprised at how quickly these costs add up. There are many other questions to take into account before deciding to settle down, especially when buying a foreclosure property.

Do you have any experience with foreclosures?

Can You Profit by Buying a Pre-foreclosure Home?

What has your experience been like and what do you typically look out for? All Rights Reserved. Money Crashers. About Money Crashers.

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    5 steps to buying a foreclosed home

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    Share this Article. Kevin Khachatryan Kevin is 22 and has a B. He was born in Yerevan, Armenia but grew up in Los Angeles. Kevin has been reading and writing about personal finance and has been investing in stocks for almost 4 years now while working as a web designer. When he is not working or studying, Kevin likes to play Fantasy Football, lift weights, and watch movies.

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    • Smart Moves When Buying a Foreclosed Home |