Does this strategy make sense?

Question

Hello everyone! I'm brand new to real estate investing and this is my first post here.

I am interested in buying a foreclosure property before it goes up for auction. It is my understanding that the approximate judgement is the amount the owner owes on the property and is the minimum amount that needs to be settled. Since I am limited on funds I intend on going to the house in person and talking with the owner.

I would offer them the amount to be settled + $5000 cash to help them personally, in exchange for ownership of the property. Also because I don't like the idea of kicking someone out of their home when they're at a low point in their life, I'd let them continue living there rent free until they're able to find somewhere else for up to 6 months.

As I said earlier I'm on limited funds, and I will not be able to buy the property with cash. I would get a hard money loan from a lender like Kiavi to purchase the property. If everything goes smooth and there are no other liens on the property, I'd do a cash out refinance and get my initial investment back.

Does this strategy make sense? Is there anything I'm missing? Anything I should watch out for? Please be 100% blunt with replies because I'm trying to learn as much as I can.

I'm 22 years old living in NJ and I don't qualify for much money in traditional loans, but my credit and income is good so I'm trying to get creative so I can leave my parents house.

Thank you for reading!

Nicholas L. · Answer

@Christopher Arana

blunt answer - 100% no.  way too much risk for a new investor.  full stop.

just save up enough until you can house hack.

then house hack several times in a row.

by the time you're 30 you could own a sizable portfolio if you're willing to put up with the inconvenience of moving every 2 years.

there's no easy right now in RE.

hope this helps.

Travis Timmons · Answer

1. There are no secret strategies.

2. There are no secret markets.

3. Slow and steady still wins the race.

Work hard, save money, take advantage of 3-5% down payments and house hack in the best possible location within your budget, rinse and repeat. There's so much that you do not know, and you simply don't have enough cash to pursue this strategy. You know that already, though.

Zach Proux · Answer

Hey, welcome to the forum and props for getting creative this early. I’ll be blunt since you asked:

The judgment amount usually isn’t the full balance. There can be back taxes, second mortgages, HOA liens, attorney fees. Do a title search to know what’s really owed. Even if the owner signs the deed over, the bank’s lien doesn’t vanish. If you don’t pay them off, they’ll foreclose anyway.

Letting the seller stay for six months is kind, but also risky. Once someone’s in a property, even as “guests,” they can gain tenant rights and you may be stuck with an eviction battle. That can drag out and cost way more than you plan.

Hard money can work, but only when you control the timeline. In this case, there are too many unknowns, and a cash-out refi isn’t guaranteed quickly, it usually takes seasoning and a clean appraisal.

Not saying don’t invest, but for a first deal, something like a house hack or small multi with FHA financing is a lot more predictable. You’ll build experience and equity without betting everything on one complicated play.

Elealeh Fulmaran · Answer

Heart’s in the right place, but pre‑foreclosure deals are landmines if you’re underfunded. In NJ, verify title before anything: pull a full title search to catch junior liens, taxes, HOA, judgments, and reinstatement vs payoff. Get the numbers tight first: back taxes + liens + closing costs + your money cost + realistic ARV and rent, then confirm your take‑out refi terms and seasoning. If you still proceed, use a written agreement, get possession terms in writing, and avoid letting sellers stay without a clear, enforceable exit. Hard money is expensive and clock‑driven, so line up plan B funding and contractor bids before you knock on the door. A cleaner first win might be an on‑market value‑add or a tired landlord off‑market deal where you can inspect, finance, and control possession.

Christopher Arana · Answer

Hi @Denise Supplee thank you for your reply! I will definitely be taking my time to do extensive and thorough research before moving forward

Christopher Arana · Answer

@Shawn Mcenteer

A lender approved me for 225k for a duplex with an FHA loan. This was based on my average income for the past two years

Denise Supplee · Answer

Hi @Christopher Arana. Foreclosure properties often come with hidden issues like multiple liens, unpaid taxes, or repairs that can add unexpected costs. Using hard money loans increases financial risk because they have high interest rates and short repayment terms, so timing your refinance is critical. Additionally, negotiating directly with owners can be unpredictable—there’s no guarantee they’ll agree or act in good faith. Without thorough legal and title checks, you might face complications that could delay or derail the deal. While the approach can work, it requires careful research, solid backup plans, and a clear understanding of the financial and legal risks involved.

Shawn Mcenteer · Answer

Hi Chris.  What type are numbers is lending saying for multi family? I can't promise anything but I have seen  plenty of situations where 1 lender will be lower than the next when it comes to house hacking.

Christopher Arana · Answer

@Nicholas L.

I appreciate your reply! I definitely understand that there are many risks and no easy path for a beginner in real estate right now. I have looked into house hacking and right now I don't qualify for enough money to buy any multi unit property in central/north NJ, even those in terrible condition.

Can you tell me what risks you see in this strategy?

Does this strategy make sense?

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