Foreclosed Real Estate: Pearls amid the Perils
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Even in the best of times, foreclosures happen. But their numbers may soon increase sharply with unemployment rising and mortgage delinquency rates the highest they’ve been since 1992. For an investor with a strong stomach, a discerning eye, and considerable knowledge of the local real estate market and laws, this could be a chance to build a profitable property portfolio. You assume a lot of risk with this kind of real estate investing. In some cases, you are acquiring an asset that you haven’t inspected, except from the curb. And in some states, when you buy at a foreclosure sale, the defaulting borrower has from a few days to 12 months to reclaim the property. But often you’re getting an opportunity to buy real estate for less than the market price. And because “most people have no idea how the foreclosure process works,” there’s not much competition, says Robert Shemin, who has bought hundreds of foreclosed properties and is the author of Secrets of a Millionaire Real Estate Investor (Dearborn, $18.95), a primer on real estate investing. Investors in foreclosures differ on what they deem an acceptable rate of return for the inherent risks. Most won’t settle for less than 30% return. So if you think you can sell a property for $200,000, you’d better make sure that your bid, plus repairs and carrying costs, doesn’t exceed $140,000. Making an accurate appraisal requires savvy not only about property values but also about how and where court records are kept. When a creditor files suit to reclaim a property, this becomes part of the public record. You can find postings of pending foreclosure suits (or notices of delinquency in some states) at the local courthouse. Ward Hanigan of San Diego, who moderates a foreclosure discussion group at foreclosureforum.com, advises that you check a local legal newspaper, preferably a daily. “Why burn your eyeballs out looking at a daily microfilm court record if you can pay someone else to compile all the information for you?” he says. Many legal circulars have electronic versions that subscribers can receive via e-mail. More : businessweek.com |