Buying foreclosures can be profitable. Many people have made fortunes doing this. There are several types of foreclosure situations, with the most common ones being delinquent mortgage payments, tax payments, and homeowner association dues.
Tax foreclosure sales are usually conducted by law enforcement officers (such as a sheriff) or other officials of the taxing jurisdiction. Mortgage foreclosures are typically conducted by a trustee designated by the mortgagee or lender. These sales take place in a public auction where bidders may compete to buy the property. The typical foreclosure sale takes place at a public location, such as a county court house.
A lot more people would bid on foreclosed homes but for one simple reason: lack of money. The foreclosure auction is almost always on a cash-only basis and most people do not have many thousands of dollars in discretionary cash on hand. Most banks and other lenders are very reluctant to loan money to purchase homes at foreclosure auctions. So this leaves primarily just people with deep pockets or who have private partners to do the lion's share of the bidding.
Foreclosures present an opportunity for the investor who is able to buy low and sell high. They keys are knowing the market, an ability to do public records research, understanding construction, and knowing what repairs will cost. Many investors have discovered to their horror that a home they bought actually needs many thousands of dollars in major structural repairs that they did not know about. This is much more likely to happen when a home cannot be inspected closely prior to purchase. While a foreclosed home occasionally does not need any repairs, these properties usually do require substantial cosmetic work to get them into decent shape for marketing.
A search of public records will also uncover additional liens or encumbrances that add to the cost of acquiring a property. It is not uncommon for the total amount of unpaid loans, taxes, and other obligations to exceed the market value of the property. It pays to do your homework.
An alternative to buying homes at foreclosure auction is buying them prior to foreclosure from the current owner. People facing foreclosure will often be willing to sell at a discounted price to get out from under the loan. This gives the investor the opportunity to closely inspect the home before purchase and to negotiate a price.
Notices of properties facing foreclosure can be found at county court houses and often can be obtained from lists compiled from those records and sold privately. There are even online web sources of both pre-foreclosures and homes already repossessed by lenders.
Before you begin, consider enlisting the help of a qualified real estate agent. They will typically know more about the local market and the complicated aspects of real estate than the beginning investor.