With the end of mortgage forbearances and foreclosure moratoria on the horizon, it's clear that -- at some point this year -- many homeowners will start to struggle. Some areas will be hit harder than others, but more than likely, most markets will see a rise in foreclosures by the end of the year.
As an investor, that means lots of opportunities to expand your portfolio (and profits). More importantly, it can also mean helping your neighbors and community at large.
Think foreclosures may rise in your area this year? Here are three ways you can help -- and capitalize.
1. Buy homes in pre-foreclosure
Borrowers in pre-foreclosure only have a few weeks to settle up or lose their homes, so they're often eager to sell -- sometimes at a discount, too. If you find a home in pre-foreclosure in your area, reach out to the owner and see if you can make a deal for the home.
Buying the home will not only save the borrower from foreclosure, but it will also prevent the credit problems foreclosure can cause later on. For you, it means a new property to flip, sell, rent out, or even live in.
To find pre-foreclosures, check the local newspaper (the public notices section), dive into public records (head to your county courthouse), or send out direct mailers to communities you know are struggling. Working with a tuned-in real estate agent can also be helpful.
2. Rent the home back to them
Another option is to buy the house and rent it back to the owner. This may make them more amenable to offering a discount on the property, and it will also mean steady, consistent income over time. Just be sure you're ready for the duties of landlording -- or that you have a property manager lined up to do them for you.
3. Become the lender
Finally, you can also think about buying the homeowner's loan and becoming their lender yourself. Most lenders aren't keen on holding on to nonperforming loans -- nor do they want distressed properties on the books. For these reasons, many will consider selling those loans off to the right buyer. Sometimes, they'll even sell them at a steep discount.
Once you own the loan, you can modify the terms and offer more payment flexibility until the homeowner gets back on track. If the borrowers make payments consistently and the loan starts performing again, you can then sell the loan to a new investor and take your profits.
The bottom line
As mentioned, there's a good chance we'll see a rise in foreclosures at some point this year. Foreclosures hurt property values and thus, your own investment portfolio over time. To prevent this -- as well as help your community and make a profit -- consider investing in these troubled properties before it's too late.