When bank forclosures process begins, three real estate investing opportunities are created; the Default phase, the Auction phase, and the REO phase. Below, we will discuss the advantages and the disadvantages of each of the three opportunities.

Purchasing Homes before Bank Foreclosures

When you purchase a home before the forclosure process has begun, you are able to work directly with the owner of the home and sometimes even the lender. You are able to try for a win/win situation. The homeowner wins because they make the sale and avoid forclosure and you win because you are able to get the property at a large reduction.

In order to accomplish a successful purchases before bank forclosures, the following 7 steps are recommended:

1. Find homes that are in default on the loans.

2. Compare homes and choose which one to pursue.

3. Inspect the property.

4. Figure out what the property owner needs.

5. Figure out the market value of the property, repair costs, and potential sales price and profit.

6. Negotiate with the owner and the lender to come up with a decision.

7. Close on the property, fix it up and sell it again quickly.

Advantages - If done correctly, this can be a great investment. The discounts from market value are usually around 20 to 35 percent. A low down payment is possible if it's structured properly, and you have plenty of time to check out the properties. You are able to make unique and flexible sales agreements.

Disadvantages - Sometimes it can be hard to get in touch with the property owner. You will have competition to purchase the home, and the court house research can be difficult. You may also have to negotiate with the lien holders.

Auction Purchases

Purchasing homes at an auction can be great. It is also dangerous. You are able to purchase the home as the highest bidder, and the process moves quickly. When you are purchasing something at an auction, you have to compete against the lender and other people who are looking to invest. Before purchasing at the auction, most people research the properties before the sale date, go after realistic opportunities, calculate their potential for profit and amounts, determine a good bid price and then go to the auction to bid.

Advantages - This is a great way to find moderate to large discounts. It's possible to save anywhere from 35 to 45 off of market values and you can earn an excellent return on investment. It's possible to really hit the jackpot.

Disadvantages - The auctions are often postponed or delayed. Being able to inspect the property is rare. In truth, a title search should be performed on the house and this is usually costly. You may have to provide a check for ten percent of the purchase amount within days or weeks from the auction. If you don't do your research, it may result in a loss.

Purchasing REOs

Some think that the easiest way to purchase a foreclosed home is to buy an REO. A 'Real Estate Owned' occurs when a lender takes a property back to gain possession and cut its losses. They normally do not want to keep the property because it is not in the real estate business, and so they normally move the property quickly.

Advantages - The lender is the lien holder, so there is always a clear title, and that saves a lot of time. Not to mention expenses and worries about purchasing forclosure homes. The property taxes which were in arrears have normally been paid and the property may have been repaired to be within acceptable standards. Sometimes though, they just leave the repairs to the buyer and offer a discount.

Disadvantages - There are low to no risks with this method, however the rewards can be pretty low as well. You may save anywhere from 5 percent to 15 percent off of market value. You can save up to 25 percent or more if you are knowledgeable and know how.

This method of investing in forclosure properties can bring excellent profits. All three forclosure opportunities contain rewards and risks. Doing your homework before you buy is a must.

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