3 Ways to Invest in Preforeclosure Homes

Investor concept - buying preforeclosure homes

There are many ways to make good money as a real estate investor. You can define a very specific niche market. Or, you can explore a number of different investment options that allow you to be profitable. How you want to define your business plan is up to you. One opportunity you may be considering, especially as the real estate market continues to shift, is buying preforeclosure homes.

Distressed properties can offer good investment potential. You can purchase them for lower prices and then renovate the home in order to flip for profit or rent out for long-term financial gains. You may simply be a wholeseller who resells the house to another buyer. There are a lot of things you can do with a house that is in the preforeclosure process.

We should note that “preforeclosure” means that the property owner is facing foreclosure. However, the actual foreclosure process hasn’t happened yet. This is where you can take advantage as a real estate investor. The homeowner may be looking to sell before the bank seizes their property. It can help minimize the damage to their credit score and potentially provide a better financial outcome for them. You can buy the house quickly and they can move on with their lives.

There are a few different ways you can invest in preforeclosure homes:

1. Buy at a Discounted Price

The most common way to take ownership of a preforeclosure home is to buy it at a discounted price directly from the homeowner. The seller will likely take the best offer they can get and will be looking to get the deal done quickly. If you are buying with cash or have very solid financial backing, you can close on the property within days or weeks. This gets them out of a really bad situation and helps them avoid foreclosure. Meanwhile, you get a house at a lower price. This leaves more meat on the bone to make profit.

2. Take Over the Loan

Another solution is for you, the buyer, to take over the seller’s loan. This is known as “subject-to financing” when the seller’s mortgage loan stays in place and you take over payments (and make any overdue back payments). Or, you can transfer the mortgage to your name and take over the loan that way. The idea here is you may be able to get an even lower discounted price overall, depending on what the property is worth and what the seller still owes. You may end up paying off the loan early or just keep making the original mortgage payments. Either way, you get to take ownership of the house.

3. Short Sale

You may also be able to work out a short sale deal with the lender/bank before they officially seize the property. They are avoiding a lot of extra legal work and costs, and they don’t have to worry about selling the house later. You aren’t necessarily working with the seller here. You are working with the lender to find an agreeable price that enables you to purchase the property at a discount.

Buying preforeclosure homes can be a good investment strategy if you know what you are doing. For help with all your real estate investing needs and resources, join the PropertyLark home buying network.