Bankruptcy is a legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.

Investing in bankruptcies can be a big moneymaker for our RealSuccess students.  Investing in bankruptcies can result in a substantial income when you choose the right property.  There are several laws that can change from area to area that govern bankruptcies. Which means, there are risks involved to the investor, and being aware of these risks can help you with your investing tremendously.  

 A large risk that you face with bankruptcies is that the owner can come back and lay claim to their property.  Some states even have laws stating the bankruptcies are not complete for a certain amount of time. You will have to determine if your region has this type of law protecting the homeowners when they file bankruptcy.  If this is the case, make sure the home is vacant before making an offer on the property. You don’t want to put your money into something only to lose it when the homeowners get back on their feet. 

When the owner defaults on the mortgage a bankruptcy order is then put in place. The bank will start the proceedings necessary to regain possession of the property.  These bankruptcy properties are usually listed in the local paper under the sheriff’s sale heading. The opening bid usually starts at approximately two-thirds of the appraised value of the home.  The highest bidder is awarded the property. Investing in bankruptcies can increase an investor’s portfolio tremendously.  

Having a plan of action when you’re investing in bankruptcies is a crucial part. The first thing you must do is determine what your plans for the property are.  Is it going to be a rental property or do you plan to flip the house? Determining what you want to do with your properties beforehand is important so you know what area to look in, and how you can make a profit from your new property. 

Choosing bankruptcies carefully is highly important.  You do not want to find bankruptcies that are depreciating. Instead, look for high growth potential that will increase in value. Just because the price seems to be right does not mean the property is the one for you.  Determine the average selling time of the houses which have sold. This will give you a good indication of what you can get for the property you are looking at.

When investing in bankruptcies you should always look at the bottom line.  If you can not make a 10% or greater return on the investment then it is not a good property to purchase.  You must know your market. Looking at past sales in the area is key. Determining whether the area is growing or declining is an important factor in bankruptcy. Knowing how long each house that sold stayed on the market is also significant. You may find bankruptcies which have been on the market for six months or more, this is a good indication that it is probably a bad investment. With all the other investors out there, if one of them did not want it, you probably do not want it either.

Once you become more familiar with investing in bankruptcies you will learn what to buy and what to avoid. You will understand which areas are good investments and which ones are not worth your time.  You will also be able to understand the real estate market and the lending red tape. This will help when you are investing in bankruptcies.