Re: Foreclosures are hard work
Before I ramble on about foreclosures, check out Doris Havens' SEC complaint on Vanguard. It's tough to slog through the links but it gives a great perspective on how even the best-run & most-ethical (?) fund companies can fall on their customer-service swords. If you're investing five-figure lump sums instead of DCA'ing a few hundred a paycheck, then you might be better off with a discount broker and a few index ETFs.
http://www.fundalarm.com/spec_1.htm
As for foreclosures, you can make a pile of money but you'll earn it.
Getting past the millions of reasons that homes end up in foreclosure brings one to the fact that the owners no longer have any motivation to maintain the property. In fact, they'll usually neglect or even damage it in their frustration. Since the foreclosure process can take months, it gives the property a long time to slide into disrepair. Vandalism is common.
While the vast number of foreclosures occur from a lack of cashflow (too much mortgage or not enough job), some are caused by a lack of capital to handle serious property problems-- zoning, toxic waste cleanup, archaeological finds, stachybotris (there's that mold thing again), erosion, subsidence, dried-out wells, water leaks, sewage/septic problems, or even electrical/ventilation infrastructure problems. This makes even a bitter divorce look like a simple situation. In other words, the owners probably wish they could sell the place but haven't been able to for a very good reason. Disclosure is not necessarily forthcoming, maybe not even to the bank holding the mortgage.
A bright, energetic realtor will be able to sense your commitment and find you a foreclosure long before you read about it in the newspaper. In addition to their "finder's fee", you'll also want a full afternoon from a licensed home inspector (one who's familiar with the age of the house if it's antique) and perhaps a civil (land), structural, water/seware, or electrical engineer. You'll also want the title search from hell to verify that the property is accurately described, owned by the foreclosing bank, not claimed by New York's Oneida Indian tribe, and can be conveyed free of legal issues or contractor's liens. (As far as they can tell!) Hopefully it's not hostage to a divorce battle. You may even want your own lawyer to handle the title search instead of some overworked title-company clerk.
If you get to the point where you think it's actually a good idea to buy the property (say on the 15th or 20th one) it might be worth making an offer directly to the owner or the bank before the auction. This may help the bank avoid the expense of an auction, so you'll have to know all the details of the current mortgage & the property's value-- and avoid lowballing or they'll ignore you and go straight to auction.
How do I know all this stuff? I wish I had the experience, but I learned from a local full-time property buyer who's always looking for venture capital. He, of course, has developed contacts throughout the local finance & realty businesses and he's usually a week ahead of us average homehunters. Many times the banks send their delinquent mortgagees to him before they initiate foreclosure, so we'll never know about it until it's over. He's able to call upon his contractor network to check out all of the above details and produce a reasonable offer. Then he asks his investor network for money. If they invest, they share in his profits. If they don't invest, he moves on to the next name on his list. Usually the investors are putting up a substantial chunk of cash ($50K min) within 24 hours in the hopes of flipping the property in a year or so for a 20-50% return. The buyer turns the property over to a general contractor who supervises all of the repairs-- usually pretty serious infrastructure problems or major work-- and then he flips it to one of us bottom-fishers to finish off the minor work & décor details.
So perhaps to get in on the ground floor with the professionals, you could watch for those "We buy houses!" ads and start developing contacts. While you might initially be viewed as an investor, the buyers might also contact you when the property is getting ready for resale.
Anyone else?
Besides when you're ER'ed, who cares if you're well rested!
