Gyrations in the stock market and record low interest rates do not provide good alternative investment options for small investors.

A proven asset to counteract this double anomaly is Real Estate. In fact, it's never been a better time to buy foreclosures. The data shows that the majority of foreclosures relate to residential properties and it is one of the best places to obtain a bargain.

Record low interest rates are your best leverage to capitalize on this investment opportunity, regardless of your investment profile (small, medium or large), given the current economic climate. There is an inverse relationship between the number of houses, particularly upscale, that are available for foreclosure during a recession, with the number increasing as the recession persists.

To obtain a bang for your buck and realize the significant benefits and savings of buying foreclosure, it requires a strategy that is big on being SMART.

Foreclosed residential properties span all geographical areas and properties (from urban to suburban, cottage to beachfront, and midscale to upscale).

Indicators of a Pending Foreclosure

A property facing foreclosure will generally offer tell-tale signs. The property will exhibit signs of neglect, but begins when the owner has been struggling to meet mortgage obligations and falls behind on payments.

A sign of property neglect, which is not always obvious, include everything from: overgrown lawns, leaking roofs, unkempt edges and broken windows to a general unsightly appearance, demonstrating lack of ownership interest and pride. Properties exhibiting these traits transcend all type, from affluent to not so affluent areas.

Research - A Return on Your Investment of Time

There is a positive direct correlation between the time spent on researching foreclosed properties and the return. The amount of time spent researching a foreclosed property is realized with the return.

However, knowing what, where and how to conduct the research can be a frustrating exercise and may not yield the best results. To maximize the best results, you need the service of a qualified registered Real Estate Agent like WASANTHA ABEYSIRI, B.Sc. MBA. It requires the researcher to prepare, be patient and persistent to yield the best results.

When a lender decides to foreclose on a property, a Notice of Sale Under Mortgage ("Notice") is filed, depending on the province. This document is a public record, and for buyers, it's the first step in locating a property in foreclosure. A buyer looking for foreclosures, can also buy magazines and newsletters that list properties in default.

Once a home has been located, one can search public records. The research includes such pertinent action such as looking for liens on the property, since they can drive up the purchase price. Liens typically are placed on a house for unpaid property taxes. Verification of the assessed values and sale prices of neighboring properties are also important aspects of the research.

Research local municipalities and cities foreclosure laws, since they differ. Some provinces -- such as Alberta, Manitoba, British Columbia, Quebec and Saskatchewan -- require the lender to sue the borrower and get a court order for the sale of the property, through a judicial sale foreclosure. Other provinces -- including Ontario, Newfoundland, Prince Edward Island and New Brunswick -- follow the non-judicial foreclosure process, which doesn't require a lawsuit, as the proceedings are generally laid out in the mortgage documents.

Determine, through your Real Estate Agent, which lender(s) own the property, as this will directly impact the purchase price for the foreclosed property.

Hidden Foreclosures

The best research may not identify "the hidden foreclosure". This could be due to the fact that some properties may not appear on public / national lists or the property is new and not a previously owned home.

In other cases, it may simply be due to economic downturn, which adversely impacts some builders of mid to upscale homes, not finding suitable buyers when their construction loan expires. Accordingly, the lender that issued the construction loan will have to assume ownership of the property. The result - the property is foreclosed and not listed, requiring the lender to attempt to dispose of the property through Real Estate Agents.

In these cases, the banks that issued the construction loans take possession of the homes and attempt to sell them, using Real Estate Agents to handle the deals.

Pre-Foreclosures

Pre-foreclosure buys offer bargains but demand persistence. This occurs as owners are often pressured by creditors in pre-foreclosures at this stage.

However, it is a slam-dunk or home-run bargain as the homeowner may be reluctant to sell as they may have other underlying problems. Pre-foreclosures can be a high risk-high return strategy and may not be suitable as a strategy to everyone, as it requires persistence and patience, as well as preparation.

The Best Deals Generate More Savings

To get the best deals to generate more savings, while obtaining a bang for your buck, purchase foreclosed properties from one lender who directly holds the mortgage default property. Bank-owned properties offer the safest deal for inexperienced foreclosure buyers. There is usually little to no risk, taxes or liens on the foreclosed property.

The lender may forego or waive various costs, including: partial closing costs, assuming any appraisal fee charges, down payment requirement or offer an interest rate break and/or other attractive terms. A good Real Estate Agent will negotiate on your behalf for the best offer.

And lender deals typically include title insurance, which removes much of the risk that accompanies buying homes earlier in the foreclosure process.

Buyer Beware

Foreclosure can be a boon or bust for the buyer. The foreclosed property may be a ‘lemon' fraught with a myriad of problems, not the least of which could be a legal nightmare (which may prove difficult in untangling).

Foreclosed properties in poor conditions may prove to be a catch at first sight but there may be underlying issues, such as significant repair costs, which can negate any perceived benefits / savings. However, this can translate into a boon, if the location results in savings that compensate for the physical state of the property.

One should never discount the services of a qualified and registered Real Estate Agent to ferret out these hidden and underlying problems.

The Auctioneer

The auction is another method of obtaining a foreclosed property. Given that most auctions take place at the municipal or city courthouse, they may result in disadvantages to the prospective buyer. The property may be sold ‘as is", which means buyers might not be able to inspect the property, and they'll have to put up the entire purchase price the same day.

The Federal government may also run auctions to unload homes it has acquired through defaults on federally backed mortgages. There aren't a lot of steals in this process as the sale price is generally close to the assessed value.

HOW TO BENEFIT FROM IT ALL....GETTING STARTED

Having good credit is a great place to start.

With record low interest rates, banks and other lenders require only a 10% down payment to finance the cost of an identified foreclosure property, if it is to be used as a rental. In some cases, banks may be willing to offer 100% financing.

Equity

Individuals with a large amount of equity in another property may use this as leverage to obtain a line of credit from their financial institution to purchase a foreclosure. Using a strategy of converting the line of credit to a mortgage means that no down payment may be required.

Tax-Exemption or Tax-Free Asset Appreciation

Borrowers / investors can benefit from acquiring a foreclosure home that appreciates annually, depending on:

- Location (the area in which the property is acquired)

- Purchases made at below market value

The benefit may be two-fold:

I. Tax-exemption - where the appreciation is tax-exempt until the property is sold

II. Tax-free - where the appreciation is tax-free if the property is kept as a principal residence, (through tax deductions)