Real Estate Bargains: Seven Sources

There are seven basic sources for real estate bargains. Each has both advantages and disadvantages. But the savvy buyer can often find the ideal bargain in one of these areas. 

One of the best sources of real estate bargains is the property in "pre-foreclosure". The owner realizes there's a critical problem and may be willing to cut a deal to try to protect their credit. Some investors specialize in this type of property, taking over payments and then leasing the property back to the former owner. Disadvantages of this method include difficulties in identifying pre-foreclosure properties. Also, leasing back to the occupant may not be cost-effective—especially if he's already determined he can't afford to live there. 

A popular option is foreclosure or reo (real-estate-owned by a bank or finance company) property. This can represent a significant opportunity, but properties are often in disrepair. And at least one metropolitan U.S. area requires foreclosure buyers to invest at least $1000 in improvements for every month the property sat empty—which could represent a significant investment before you ever see a return. 

Tax sales are another common source of real estate bargains. However, a homeowner who can't afford the property taxes probably couldn't afford necessary maintenance either, and the property may be in a critical state of disrepair. Most areas allow up to two years for the owner to redeem the property, so once again, your return will be delayed. 

One current trend is the short sale—where the buyer acquires the property for less than the seller owed on it. This is common in areas where property values have suffered a serious decline or where major layoffs have occurred. These are decided on a case-by-case basis, and require lender approval. It may take months to close a short sale. 

Many real estate investors find their bread and butter in the form of "motivated sellers". These are often cases where a temporary hardship requires a quick sale. Accident, illness, or divorce are common causes, and sellers may offer favorable terms to close quickly. 

Another traditional real estate bargain is the handyman special. These are often rental properties that have been trashed by a tenant and the landlord just wants to get rid of the hassle. They can be a great opportunity—cleaning and painting can provide "instant equity". Be careful of properties that are being tagged for code violations or condemnation—they may not permit do-it-yourself repairs and may turn into a bureaucratic nightmare. 

Finally, estate sales can also be a bargain. You will probably need to be prepared with financing or cash, as heirs are seldom willing to offer creative financing. 

There are still real estate bargains to be found in today's market. You just have to know where to look.