Pre-Foreclosures - Can You Make Money?

If you've been looking into the idea of making money in real estate by buying foreclosures, then you may have come across the idea of buying pre-foreclosure.  Basically, pre-foreclosure is the period when the buyer is behind on payments, but the lender has yet to auction off the property.  There's a good and bad side to buying in pre-foreclosure, so let's take a look at both.

When someone is facing foreclosure, they're often very motivated to get out of the mortgage completely.  This gives you a good opportunity to buy the house for little more than the cost of taking over the mortgage payments.  There are thousands of foreclosures advertised every month, so if you do your research or subscribe to a listing service, you can simply do drive bys and then approach the owners of properties you're interested in buying.

The downside is that properties are only in pre-foreclosure for about three weeks, so you need to be quick.  In that time you have to contact the owners, get contracts signed, organize finance and anything else that needs to be sorted out.  It's important to realize, too, that you're not going to be dealing with level headed, logical owners who realize that it's to the benefit of their credit history to avoid having a foreclosure listed there.  It's much more likely that they'll be angry at the world in general, under a lot of stress and receiving numerous calls from debt collectors.  They're not likely to greet you with enthusiasm and open arms. 

It's also possible that the homeowner will find a way out of their situation before the courthouse auction occurs, in which case you may spend a lot of time putting together a deal that doesn't happen. 

If you're serious about buying pre-foreclosures, then you need to let people know you're there as an option.  Design a bold, eye-catching flyer that you can send or give to the house owners, and make sure it's motivational enough for them to call you.  At the time you're trying to contact the owners they're probably overloaded with debt collection notices, so you need to make it clear you're something different.  Stand out, and contact them more than once if necessary.  Vary your approach, rouse their curiosity, and make sure you come across as someone who can help them, not just a pushy person wanting to make money out of their situation.

Buying pre-foreclosures isn't for everyone - you need to take action quickly, be diligent in doing your research, and be able to handle rejection, a lot of which will be nasty and unpleasant.  It's important to keep on top of new listings, because the sooner you can get to an owner in pre-foreclosure, the better your chances of success.  So spending money on a listing service will pay off in time saved.  If you can handle all the different elements, pre-foreclosures can be a great way to build your real estate investment portfolio very cheaply.