Despite the fact that foreclosures have proven to be a great investment opportunity for most real estate investors, if you are not careful you can lose out on a lot, especially your time, effort and sometimes even money. This investment opportunity is full of pitfalls that can not only cause huge time delays but can also be very costly for you as an investor. Needless to mention, with the sole purpose of making as much profit as possible out of such an investment, you cannot afford to make any foreseeable mistakes, not as a foreclosure investor.
It is important to note that foreclosures can sometimes be downright frustrating to an investor. Say you have found a great property to invest in; you have finalized all purchases at the public sale and are just about to take full control of it when the defaulted buyer sees an opportunity and takes advantage of the period of redemption to get back their property. While this is great for the defaulted owner, certainly it is not good for you as the investor. You will receive your cash back with nothing to write home about your effort and time.
Liens on properties
You should know by now that foreclosure properties have liens too. Although the property owners inability to make monthly mortgage payments is what would have contributed to the property being foreclosed, there could be other bills that are most likely not paid. Liens are legally binding documents filed against properties and which have to be paid off in full before the transfer process to a new owner is over. Ensure you get this right before you “inherit” a huge bill on your newly acquired property.
The other notable pitfall is when the actual sale of a given property keeps being postponed for any number of reasons. Probably the defaulted owner has reached an agreement with the lender on an affordable way to pay for the mortgage. Or maybe he has raised enough money to save the property. Or maybe another buyer has brought forth a better offer on the property. As an investor, this can be disappointing and is a pitfall that you should be well prepared and well cushioned to avoid wasting so much time and effort on something that may not be viable in the long run.
Having said that, another important point that should be brought to the attention of foreclosure investors is to avoid making themselves legally vulnerable. It is often very easy for most people to sign legal papers without clearly understanding the legal ramifications. Your signature on any legally binding document can land you in real trouble, and you may find yourself with payments to make that you had not budgeted for.
As a foreclosure investor you ought to take every precaution to protect yourself and your hard-earned money. Keeping in mind that you are dealing with a distressed homeowner who is not ready to accept defeat, you could be in for a very rude shock when things turn against you. These homeowners tend to hang on to false hope praying for some easy way out of the situation. Knowing the pitfalls to avoid, however, will ensure you are strong enough to accept whatever problem you may encounter when dealing with foreclosures.