Transcripts

"Money File"-Beware The Foreclosure Bargain

SUSIE GHARIB: In tonight's "money file," the pros and cons of investing in foreclosed homes. Here's Terri Cullen, personal finance columnist at "Wall Street Journal online."

TERRI CULLEN, PERSONAL FINANCE COLUMNIST, THE WALL STREET JOURNAL ONLINE: There's been a lot of talk about homeowners who are hurting financially after borrowing with sub-prime loans, mortgages that are designed for people with bad credit. Now, lenders are reporting that even homeowners with good credit are struggling to keep up with their monthly payments and those mortgage payment delinquencies come on the heels of a record number of home foreclosures.

But while this may be bad new for homeowners, it's been a boon for real estate investors who buy and sell homes in foreclosure. With interest rates still relatively low and the housing market weak from the glut of properties already for sale, more investors are profiting by buying foreclosed homes at bargain prices. Investing in foreclosed homes can be very profitable; experienced foreclosure investors say buyers could make a 20 to 30 percent profit if the deal is executed properly.

But investors who are new to foreclosures need to be extremely careful. Generally, you can't inspect homes prior to auction; a home in need of major repairs could wipe out any profit on a so-called bargain purchase. Some homes may come with hidden liens or utility bills to pay. And state and local rules vary, so you need to understand the process before bidding and know the former homeowner's rights. Investors can find foreclosure listings at the county clerk's office or sheriff's department. For a fee, online foreclosure listing services will provide up-to-the- minute listings and e-mail alerts for foreclosed homes. A title search company can help determine if there are any outstanding liens on a home. If investing in a foreclosed home at auction sounds like too much work, consider negotiating directly with lenders to buy bank-owned properties. I'm Terri Cullen.