Whenever you invest in real estate, whether to live in, to flip or to rent, you need to make some tough decisions and take a long look at your finances. You should not wait until you cannot make your mortgage payment to consider how to avoid foreclosure. Instead, you should be thinking about how to avoid foreclosure before you ever buy a property. In this way you will be fully prepared for any hard ships that may come along, and you will not lose the house to the bank.
The first thing you have to do when you are considering a real estate investment is look at your long term finances. Are you in a stable employment situation? Is your income likely to go down at all in the near or distant future? You should feel secure in your sources of income so that you do not have the worry of what to do in the future should your income decrease and a mortgage come due.
You should also look at how much you can really afford per month. This takes some long term planning and organization. You should use a personal bookkeeping software like Quicken or QuickBooks to organize your finances and track all of your income and spending. Alternatively you could set up your own spreadsheet to track this information. However you decide to do it, you need to track your average spending and income for one year‚Äôs time. This will enable you to get a rough idea of where your money goes each month or year. Armed with this information you can determine what expenses can be cut out and what is necessary, and from there determine the highest amount of money you can comfortably pay each month on a mortgage. When looking at real estate investments and mortgages you will have to keep this number in mind.
If you are looking to invest in real estate to earn a profit, you still need to follow these tips. For example, let‚Äôs say you bought a property to flip it, put money into it to fix it up, and pay on a mortgage while you are waiting to sell it. You may have thought that you would only need to pay on the mortgage for a few months, but the economy actually leaves the house on the market for more than a year and it is still not sold. You risk defaulting and losing the house to a foreclosure. Instead of facing this scenario, you should make sure you can afford the payments long term just in case your investment doesn‚Äôt pay off right away.
The same is true of buying properties to rent. If by chance the home might become vacant for some months, you need to be sure that you can make the mortgage payments even if you do not have that income coming in. You should consider all of this before you every purchase the property if you want to truly avoid foreclosure.