Foreclosures

Investing in Foreclosures

While its no secret to anyone who aware of what’s going on the United States real estate market, there has been a huge spike in the number of foreclosures across the nation. Almost every home and garden show, real estate magazine and property report will reveal the same thing. There are a lot of foreclosure properties to be had. But what really are the benefits of a property in foreclosure, and what is the simplistic way to understand which foreclosure is a good investment and which ones are not? It may be confusing for some investors to understand why foreclosures are such a good deal and why some have such potential for return and others do not. First of all let’s crunch some basic numbers.

Do your research. Call a realtor, go online or even dip into the public records and find out what the homes are selling for on average in the area that you are interested in buying a fore closured home or rental property. Try to be as comprehensive as possible. The high end and the low end of the market is what’s going to give you the most detailed information you can get about an area, so be sure that you don’t miss any pockets of a subdivided area, and don’t just collect data from the one block that your property is on. Going by counties is usually the best and most accurate way to develop a correct averaged number.

Once you get the average selling price of the properties in the area, the easiest way to get to the heart of a good deal is to divide that number in half. Not in fourths, not in thirds, but in half. If you can purchase the fore closured home for that price then you can be assured that you are getting a good deal. Anything higher than that and you may be getting into a bit of a risky investment.

However, in the real estate market, especially the foreclosure market, nothing is as cut and dry as it should be. An investor finds a home in foreclosure and can’t resist the temptation to buy a little over the half mark average price of other homes in the area. Not all is lost, but if you want to play your investments on the safe side, and have a foreclosure purchase that you can feel good about, the standard equation is always going to be half of the averaged sale as price in that area.

Keep in mind that rehabbing is a different animal. Those that wish to purchase a fore closured home to “flip” it, would work from a different equation. Instead of cutting the average median price in half, cut it by 25% and then whatever that number is needs to be halved. This means that you will have to buy the exact same property for well under half of the asking price. Again, this is an ideal equation and the absolute best way to safeguard your self from a poor fore closure investment.