Danielle’s comments are very well put. There is an interesting change in my neck of the woods though. I gave up going to auctions at the courthouse steps a year or so ago because as Danielle says droves of investors were bidding the properties up past market values.
Now in Florida we have so many foreclosures the market is in a crisis but it is an investors’ paradise (I am sure several other areas in the country are too). I went to the courthose the other day. There was no one there. The bank ended up taking back the property and that is the trend now so we are focusing more on shortsales. Investors here have seen the opportunity. There is money to be made but it is not at the courthouse any more, it is being made several miles before the steps.
There are a couple of courses offered through this website and I know for a fact that the one I took several years ago has paid dividends many times over. Education is a major factor in your success in real estate investing and there is no better site to find your instructors than here. Don’t limit yourself.
Remember you don’t have to do things in the “ordinary” way because we are not in a “ordinary” market.
Happy investing.
Zinzi
I’m interested in purchasing a property at foreclosure auction, given that bidding does not exceed my limit. My question is how do I go about financing a foreclosure? Aren’t most banks going to be very leary of lending money to purchase a foreclosure auction, or will they at all? Is this a pure cash business?
Yes, banks are leery of lending money to people for purchasing real estate because they are not in the business of taking unsecured risks. To purchase foreclosed properties, it?s likely you will need to have certified funds available at auction. I am not aware of any bank like Bank of America or Wells Fargo providing $300,000 unsecured personal loans. Generally, when people go to the auction they use one of the following methods:
Cash: If I need to expand on this, then the problem is bigger than money!
Home Equity: When your home value exceeds the mortgage balance, you have home equity. That equity can be accessed by a revolving home-equity line of credit (HELOC) or by getting a cash-out refinance. Either way, a person could use those funds to purchase another home as long as they have enough capital. There is debate as to which is better. However, one thing to keep in mind is that HELOCs are variable loans where you have fixed options with a cash-out refinance.
Hard Money Loans: An individual borrows money from a lender who charges a fairly significant interest rate and origination fee. I have seen these origination fees run from 2%-8% of the loan and an interest rate from 1% a month to 25% annually. You better be getting a screaming deal to pay this kind of money for a home. Most people, unless they are flipping the home, use this as acquisition funding and then do a take-out loan (refinance) to attach more conservative funding to the property.
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Self-directed IRAs: Self-directed IRAs are becoming more and more popular as investors are looking for greater returns and safety than the stock market can offer. Unfortunately, a self-directed IRA custodian may not be able to help you purchase a foreclosed property. In order to buy foreclosures in your IRA, you need quick, instant access to funding. There are numerous providers that allow checkbook control by their IRA account holders. Guidant Financial Group is the premiere provider of such services and can help you purchase foreclosed properties with IRA funds. You must have enough money in your IRA, however, because generally these are going to be cash purchases.
Purchasing foreclosures are becoming very risky in certain areas because, over the past two years, there has been fairly light inventory for the droves of investors flooding to the auction blocks. We?ve seen homes driven up past market value by uneducated investors caught up in the buying frenzy. Do your homework, and good luck!