What is Foreclosure Investing? Part 1

Today in Part 1 we talk about foreclosures and an example to help simplify the process with Tom and Sarah.

As a property investor, foreclosures can provide you with incredible opportunities to buy and profit from undervalued properties. But what exactly is a foreclosure and how do you invest in one? In this article, I'll give you an overview of what foreclosure investing is... and why you should be interested - very interested - in getting involved in this hot area of the property market.

Let's set the scene by explaining a typical home purchase in America today. Let's say Tom and Sarah want to buy a home. They've saved a down payment and found their dream home. Their local bank is willing to lend the rest of the purchase price (let's say 85%), provided Tom and Sarah repay the loan in monthly payments of principal (the amount they borrowed) and interest (based on the bank's lending rate) over a certain period of time i.e. 20, 25 or 30 years, now even 40 years.

So Tom and Sarah meet their monthly repayments and eventually own their home outright and all is well...

But what if...

...they can't meet their repayments?

What if, after having their interest rate kept low for the first year or so, it's "reset" to a higher rate... that's just too high?

And what if, based on their financial circumstances, Tom and Sarah can't afford their monthly repayments?

Well, unless they can establish a less tedious arrangement with the bank... the bank probably isn't going to be too happy with Tom and Sarah!

And if it's like many (if not most) banks it's probably going to start foreclosure proceedings. Basically, these are the legal proceedings whereby a bank can repossess, and then sell, a defaulting mortgagor's property.

The laws differ from state to state, but there are two ways in which a property is typically sold by way of foreclosure.

Next blog post we will talk about those 2 ways so make sure to come back for Part 2 of this article.

Have a great day,
Rosanne