I have gotten a number of calls recently about buying foreclosed property. Most are people looking for a bargain. I have a few clients who do this for a living and they have been doing it for decades. So, if you think buying foreclosures could be for you, here is what my investor and builder clients have to say about it: “it’s a tough business,” for the pro and novice, alike. You are swimming with sharks, big smart ones. They have a pretty good idea what will make a buck and they know what to stay away from.The investor knows the risks, just like any other seasoned gambler. But, the investor also knows the local real-estate market. They will often sell for a slim profit, if they can get in and out quickly. The contractors at the auctions are looking for properties to keep their guys working. They have crews that work in construction everyday. They, too, know the market, how long it will take to rehab and what it will cost. They use agents to sell the properties when they are finished. So, you better get a good crew, or be prepared to spend some time and money bidding out the work and scheduling all the trade workers. And, make no mistakes, because that will cost you. Time management is the key to making money. Your subcontractors will move on to other jobs if you are not ready for them when you said you would be. One sub-contractor out of line could delay the entire process, and delays eat up budgets.

But, if you still like the idea, there are a few things to know: First of all, this is a cash business and you have to pay the auctioneer within 24 hours of making a purchase. And, you had better know exactly what it is that you bought: did you buy a first mortgage? A second mortgage? A third mortgage? Because this is really what you get; the property is almost secondary. Then you should know what state of payment the taxes are in. Are they paid, delinquent or did someone else buy them? How about a title search and satisfaction of leans against the property? What happens when you sell the property and find out there is a mechanics lean against the property from 5 years ago? You pay it at closing…

As you can probably tell by now, I discourage most of my buyers from the idea. There is a lot of research that goes into the purchase of distressed properties. And, you have to do your due diligence for lots of properties first. One of my investor clients said maybe 15% of what he looks at is worth buying.

So, if you still like the idea, and after you have done your research on ten or twenty properties, you buy one. Now you have to go to court to make sure the sale is approved by the judge in charge of the foreclosure. Often times, lawyers for the previous owners have filled legal document to get the property back. So, you have to wait 30 days to 6 months and then you may have to evict the residents. All the while they are stripping the property of cabinets, personal property and even the copper pipes and wiring in some cases. In effect, they are trashing the place. You will have to face the fact that, the past owners are not happy about loosing there home, so they strip the property bare, at best. You could even drive by one day and the property is gone, demolished by the city for being unsafe or an eyesore. And, who do you think gets the bill for that? Right, you do.

However, if you are still interested, there are some classes you can take. Check out the following: SHARK BAIT. If you are still interested, I can introduce you to one of my clients. He will work you through the process for a percentage of your first sale. And, this is money well spent, believe me.

You are swimming with the sharks on this one, and plenty of those sharks have scars. No one in this business gets away unscathed: seller, buyer and banker, will all pay a price. The bank just wants its money back. The responsibility lies with you to turn a buck.