A 101 on Investing in Distressed Real Estate

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It seems that some people are able to make millions overnight, and it always seems to be in the world of real estate. Being able to do that, like Joseph Johnson Welfont has, however, takes a lot of skill and expertise, and not in the least a lot of luck (and money!). Interestingly, what people like him seem to have focused on is short sale or distressed properties. So how does this work?

Properties in Foreclosure

There are many different kinds of distressed properties, but the most common ones are foreclosed properties. This means that the bank has took back ownership of the home from whoever bought it, because they weren’t able to pay the mortgage anymore. The bank forecloses on a property in an effort to recuperate as much of their money as possible. They usually do this through auctions, whereby the starting price is that of the outstanding balance of the mortgage. Often, this means these properties are sold for much less than the market value.

REO Properties

Sometimes, a property won’t sell at auction after foreclosure. If this happens, it becomes an REA (Real Estate Owned) property. This tends to happen when the mortgage balance was more than anyone would be willing to pay for the property. REO properties are often in bad locations and/or poor state of repair. Once a property is listed as REO, realtors and brokers like Joseph Johnson Welfont, start to become interested in it again. This is because the bank will turn the property into a “clean” title again, giving people the opportunity to buy at rock bottom prices.

Short Sale Properties

Last but not least, there are the short sale properties. This means that someone is willing to sell for less than the balance of their mortgage, in an effort to avoid foreclosure. This tends to happen if the seller is under a lot of financial strain and essentially needs a bail out. With the right tools and strategies, banks can be convinced to sell a property for less than the balance of the mortgage, because they will save so much on not having to go through foreclosure and possible REO.

In many cases, distressed properties are sold to charities. This is because the seller can then also make a tax deduction on the profit made on the sale itself. Additionally, it means that a charity is able to continue its important work in improving the life and well being of those who are less fortunate.

If you are looking to strike it big in the world of real estate, then focusing on short sale and REO is your best bet. Another good option is to look at those types of properties that have been bought by charitable organizations, who then put them back on the market. These properties tend to still be priced well below market value, but some work will have been done on them to make them more presentable and habitable.

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