With the number of mortgage foreclosures having topped the one million mark, increasingly more properties are being forced onto the real estate market under distressed circumstances. As is often the case, one person's misfortune can be another person's opportunity, and while housing prices continue to fall, looking to buy foreclosure property can be a way to find great bargains in real estate.

In particular, areas which have experienced high concentrations of mortgage foreclosures may represent target-rich environments for bargain hunters. Keep in mind though, that just because something has fallen in price does not make it a good value. Smart investors do their homework to get the most value out of foreclosure property.

• Decide whether you are an investor or buying a property to live in. While the idea of buying property on the cheap has broad appeal, you have to understand why you are doing it. If you are doing it as an investment, you should research what similar properties in the area are renting for, so you can figure out what the property would be worth as a rental. In contrast, if you are buying the property to live in, your focus should be on finding a price that would fit comfortably into your budget with a mortgage you can afford. In either case, take a long-term perspective rather than gambling on being able to "flip" the property for a profit anytime soon.
• Opt for lower-risk purchasing strategies. While public (government-administered) auctions can net you a huge discount off the previous sales price of the property, that doesn't guarantee the deal is a winner. In most cases, the minimum acceptable bid has to be sufficient to pay off the mortgage and that may be more than the home is worth. Buying a home at auction usually means buying it "as is"--and "as is" can be very ugly, involving physical neglect or even spiteful damage, tax liens and other title problems that can turn a bargain into a money pit. Buying via short sale or directly from a lender is a safer bet.
• Look at areas with high concentrations of mortgage foreclosures. In real estate, misery doesn't really like company. The more misery, the more desperate sellers there are, and the better able you'll be to drive a hard bargain as a buyer.
• Expect the process to take some time. Potential foreclosure properties can be found in public filings called Notices of Default, or NODs. Lenders file these when initiating foreclosure proceedings. By contacting the owner directly or working with an agent, you may be able to buy the property in a short sale; that is, paying less for the property than is owed to the lender. The disadvantage is that the process takes time--you have to research property values and be able to justify to the lender that your offer is a fair one. You are also competing with other bidders, and the lender may force you to wait until it has multiple offers and can evaluate them. The process typically takes months and there are no guarantees that your offer will be accepted.
• Research new home loans in advance. The new home loan is a critical piece of this puzzle. You need to shop around for competitive rates on new home loans, because the rate you get will affect how much you can pay for a property. Also, be sure your lender of choice is willing to make new home loans on foreclosure property since some shy away from that.
• Put special emphasis on an inspection. At best, people who have suffered through a foreclosure were strapped for cash and unable to put as much money into maintaining a property as they would have liked. At worst, the previous home owners were angry about losing the home and actively gutted or damaged it, and then the property may have sat vacant for a while and been subject to vandalism. Don't just have an inspector look over the property--that's pretty standard. Attend the inspection yourself, and since many foreclosure properties are being sold by real estate agents or banks which are active in the real estate market, make sure the inspector doesn't have too cozy a relationship with the seller.
• Select your deal carefully. Buying directly from the lender, while offering perhaps less chance to make an immediate killing, is a safer investment in the long run. Bank sales or auctions, unlike government sales, are publicized in advance, allow you to inspect and research the property, determine a fair (but good!) price, check the title, and even get help with financing. Banks are not in the real estate business and those with large inventories to unload may be more amenable to selling at a discount.

Successful investing involves risk, but careful investing can minimize it. Buying foreclosure properties for less than they are worth can allow you to accrue home equity faster.

Source:

The Bradenton Herald

CNN Money

RealtyTimes

USNews