Preforeclosure Investing: There’s Money in Distressed Property

Preforeclosure Investing: There’s Money in Distressed Property
By: Ada Smith

If you're in the market for sweet real estate investment deals, distressed property (preforeclosure property) investing can be among the sweetest, offering the opportunity to buy property priced well below market values.

The preforeclosure period is a window of investment opportunity for you, the investor, because homeowners are likely to be very motivated to sell their distressed property to avoid the foreclosure auction. This means that you can often buy it at a price well below market value. In addition, buying a distressed property during the preforeclosure period is usually easier (and often require less cash outlay) than competing with numerous others at the foreclosure auction.

Distressed property is not always preforeclosure property; it can be one of several types of real estate, but generally, the term distressed property refers to property that is in preforeclosure, awaiting public foreclosure auction. (Preforeclosure is the period from the time a homeowner is first considered in default on mortgage payments to the time of the foreclosure auction.) The bank schedules the foreclosure auction for the distressed property in order to collect the homeowner's outstanding debt.

Keep in mind that a distressed property is often a ''fixer upper.'' If the homeowner has had financial difficulties to the degree that his property is in preforeclosure, it's likely that he has not been able to keep up with repairs, either. Remember that when you buy distressed property that is in preforeclosure, you generally buy it ''as is.'' Make an effort to identify needed repairs and price them before making your preforeclosure investment. Be sure that your cash outlay for repairs won't cancel out your profit potential.

You can find preforeclosure properties in several ways. Search for County Recorder preforeclosure data online. Or look in the "Legal Notice" section of the local newspaper for foreclosures and upcoming foreclosure auctions. Consider subscribing to a multiple listings service (MLS), which provides distressed property listings as well as information on finding the best preforeclosure deals.

If you're willing to put in some time to locate distressed property, and if you exercise some care to assess your repair costs before buying, your preforeclosure investment can result in a tidy profit for you.