Despite the huge money that can be made from investing in pre-foreclosure properties, there are also a number of pitfalls for the unwary. Here are five pitfalls to avoid:
1. Spotting a great opportunity, too late.
When a bank issues a notice of default to a home owner who has fallen behind in their payments, this notice goes onto the public record. Not only is it filed with the county recorder's office in the relevant county, but it gets included on various foreclosure listing sites on the Internet. If you're not actively monitoring these lists, and then finally come across a great opportunity, it could be too late. Some other pre-foreclosure property investor may have already negotiated to buy the home by the time you've decided to contact the owner!
2. Failing to gain the trust of the home owner.
Right now, pre-foreclosure and foreclosure property investing is one of the biggest games in town. So you can bet that distressed home owners are being harassed by investors promising them the world. Unfortunately, this includes various scam artists and wannabes who can't fulfill their big promises. That leaves home owners more skeptical than ever, so if you don't do all you can to prove that you're legitimate, you may lose the deal before you've even stepped in the home owner's door.
3. Incorrectly valuing the property.
Your ability to profit from a pre-foreclosure deal largely rests on achieving a big enough margin between the market value of the property, and the price you can get it for. While you can hire an appraiser to get an appraisal of the value, it really rests on you to get this right. You need to consider the market values of similar properties in the area, as well as the condition of the home. You also need to take into account any liens (unpaid property taxes, utility bills, etc) that may attach to the property. If you misread the value, you could get yourself in trouble. As a rule of thumb, you want to make sure that you're getting such a good discount that you could sell the home now OR in the future, and still make a profit.
4. Making an offer that's too low, or too high.
Make an offer that's too low, and the home owner will simply reject it. Remember, they want to get some equity or at least settle their debts with the price you offer. On the other hand, if you offer to buy the property for too much, you could erode your own ability to profit.
5. Failing to properly finance the deal.
You also need to finance the deal. The last thing you want to do is to get yourself into financial difficulty by taking on a loan that YOU can't sustain!
These pitfalls may seem basic, but it's often the basic things that get missed when you're eager to find the next best deal. By all means stay enthusiastic, but also be aware of the foregoing pitfalls. That way you'll be in good shape to find profitable pre-foreclosure properties to invest in.
Mike Shackelford has been working from home and successfully Investing in Real Estate since 2003. For more Real Estate Investing information, photos and Free Downloads visit: http://www.MikeShack.com - Free Foreclosure Investing Mini Course "7 Foreclosure Secrets".
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