Apartment buildings rarely fall into the stream of foreclosure property, but poor loan choices and the economy has left owners with vacancies and balloon payments that make them unable to carry the debt service any longer. Liberal lending practices are the primary cause of the growing number of apartment pre-foreclosures which leaves a wide-open opportunity for investors to profit. Here are seven reasons why you should make apartment pre-foreclosures your next investment.

1) The apartment pre-foreclosure market is still in its early stages and investors who get in on this trend now have the opportunity to gain from great discounts. The number of properties going into default has increased and there are some serious deals to be made in just about every major state across the U.S. What’s more is that predictions from the experts have stated that we haven’t even hit the bottom of the apartment pre-foreclosure market and there will be more opportunities that are coming.

2) There’s less competition with apartment pre-foreclosures. High dollar figures and the lack of education in commercial properties keep many investors out of this market. For those who are willing to get their feet wet and start working on their first deal, there are huge profits to be made. In general, investors working pre-foreclosure deals don’t have to deal with the stress of auctions and other investors working the same deal. For example, at the auction, most people will find that there is someone who has more money to put down and better access to credit. That can be terrorizing especially if you’re new to the game. Added to that, there’s more than enough stress to go around with foreclosure deals. With pre-foreclosure properties, investors will find the stress eliminated so they can focus on working the best deal for the benefit of both parties.

3) Motivated sellers can still be found. Sellers are already stressed because their world is falling apart. They are about to lose their home and they’ve got creditors calling them constantly. They want out and they want an option that will benefit them in the long run. While it’s true that there are horror stories where investors have found many sellers in denial, the real key to success is in the approach. There are ways to get your message to the owner without being pushy and without adding to their stress. Besides that, a seller in denial shouldn’t stop anyone from going after a good deal. After all, you just may be the person to help them out of their dilemma.

4) Apartment pre-foreclosures create large equity spreads. With the number of foreclosed properties continually bombarding the lending community, banks are more open to working out a deal if the deal presented is a good one. Huge equity spreads of 30% or more are not uncommon with foreclosure properties, but it’ll be a matter of you doing your homework, working the numbers, and finding the right pressure point that will make lenders see your deal as viable.

5) Investors retain all the benefits of tax advantages without being personally liable for the property. The best thing about working a pre-foreclosure is that you can make money without ever touching your cash or your credit. Investor’s don’t even have to use other people’s money to profit from a good deal. How? Use a land trust agreement.

6) Investors are still able to negotiate deals without substantial capital and without credit. One thing that keeps many investors out of deals is the lack of capital and the lack of credit. As many already know, one bank loan taken out in your name can mean serious financial exposure especially with apartment buildings.

There are many benefits from investing in an apartment pre-foreclosure. The cash flow is significant. The market is wide open and best of all, you never really have to take possession of the property unless you wanted to.

If you’re a real estate investor looking for a bargain, be sure to consider HUD foreclosures. These are residential properties, typically a condo or single family home, obtained by the U.S. Department of Housing & Urban Development due to a foreclosure on a FHA-insured mortgage. Note that HUD becomes the property owner after the foreclosure and then puts it up for sale to recoup any losses.

Over the past several years, HUD foreclosures have increased, giving investors many choices. And because of the sub-prime lending predicament, more home buyers are utilizing FHA-insured loans, which will likely result in increased HUD foreclosures in the future. This increase could lead to an excellent opportunity for investors.

HUD foreclosures attract a variety of potential buyers, but priority is often given to bidders wanting to live in the property. Of course, cash offers, large down payments and other conditions are taken into consideration. In some markets, certain groups of citizens, such as firefighters, law enforcement, teachers, government and nonprofit employees, are given priority. Some even get up to 50 percent off the sales price.
Keep in mind the condition of a HUD home can vary greatly and all foreclosures are sold on an as-is basis. In addition, HUD does not warrant the property and is not responsible for repairs. So, be sure to get it inspected. Your discounted offer should be based on anticipated repairs — even complete renovations — that will be necessary to make the home habitable and up to code.

Purchasing a HUD home is considerably different than the normal home-buying process. HUD properties are sold using a bidding procedure that puts investors at the back of the line. For the initial 10 days a HUD home foreclosure is put up for sale only bidders that intend to occupy the home are allowed to submit offers. If no offer is accepted, then bidding is expanded to include others.

Most HUD foreclosures are posted on listing websites by various management companies contracted by HUD. All offers on HUD properties must be processed by a HUD-registered agent or broker, usually online. HUD will cover some of the sales commission and closing costs — percentages vary — but a common structure would be that HUD pays five percent for broker commissions and up to three percent for customary closing costs. If the buyer’s agent is not HUD-registered, the buyer will have to pay that agent’s commission separately. Be aware that when HUD considers an offer it will subtract the commissions and closing costs from the purchase price; an agent with a lower commission will probably be viewed favorably.

As with most real estate offers, an earnest deposit must be made at the time the offer is submitted and varies depending on the offer price. If the bid is accepted the deposit is given to the HUD agent. After the bid is accepted a sales agreement must be submitted within 48 hours in most states and a settlement deadline is usually set between 30 and 60 days.

Lastly, if you haven’t purchased a HUD property before, consider finding an agent who has. You will also want to get pre-approved by a lender as this is a requirement to bid on HUD foreclosures. And if you’re a cash buyer, you’ll need proof of sufficient funds, such as a recent bank statement or letter drafted by your banker. Finding a HUD foreclosure is fairly easy: read the newspaper, visit your local courthouse and surf the various government websites.