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Another option is to buy at the REO, or real estate-owned, stage, which essentially means a bank-owned property or a home that was taken from the owner and the bank now owns. You can get some deals, but remember the bank will want to get some of its $50,000 back. This isn't where the best deals are found; however, if you're looking into buying a residence to live in rather than invest in, it can be beneficial to buy at this stage because the bank often puts decent money into the home to fix it up. A home I recently visited, still selling for $200,000 under market value, had new carpet, new granite and hard-wood floors just installed by the bank.
The third option, of course, is to buy at auction, but you won't get the best deal here, either. Auction houses take a percentage; many companies aren't reputable, and you may not have a chance to inspect the house before you buy. Add to that the need for at least the down payment in cash and quick financing, and you may find yourself regretting your auction decision. If you do go this route, don't get into the "auction mentality" of getting excited and bidding for the "fun of it." It sounds incredible that people will do that, but it happens. The bottom line is that if you're upside down, one way to balance your portfolio, just as you'd do with stocks, is to buy cheap and create equity. This balances your overall portfolio a bit better. Foreclosures are a great way to do that.
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