Oh, yes, I want to buy a foreclosure at 50% of Market Value,
change the locks and put a real estate sign in the front yard and make a ton of
money in 30 days. Oh yeah, I don't want to put a penny of my money into the
Well, everyone wants to do that, but
I've never seen it happen!
The reality of foreclosure investing is far different than what
many people have seen either through infomercials or books that have been
written. We don't sell books, so I'll tell you what I'm aware of in the
foreclosure investment field. First, everyone I know who is an active investor
works an awful lot more than people working 9-5 jobs. Second, serious players
either have a significant amount of money of their own or have an investor
backing them up. Third, houses that are going to sale almost always need a lot
of work to bring them to Market Value. Fourth, finding a solid property to
purchase isn't a matter of picking what you want, it's a matter of finding
something that works economically, keeping track of it, finding out all you can
about it, then beating out all the other investors who are interested in it.
Sound discouraging? People treating this business seriously invest a lot of
time and energy into finding and following properties.
So, is it possible to make money in the
Sure, the key is to know your strengths and weaknesses.
The first example is the major problem most beginning investors
will have. What is the Market Value of a property you are interested in?
Experienced investors will usually all have a property valued close to the same
amount (3% variance). They will use local Multiple Listing Service comparable
sales, Title Company comps and experience to come to that value. If you are not
fully aware of what a property will sell for on the open market, you cannot do
anything with a property. All decisions regarding a property are based on the
price it will receive, Know The Value!!
The second issue of importance is the law. If you know of a
property where money can be made, you do not want to run into legal issues
because you structured a deal that is illegal in your state. Yes, states have
laws regarding what you can and cannot do with owners who are defaulting on
their home loans. Do your research, find out whether your state uses Mortgages
or Trust Deeds and the legal timeframes and implications of each.
The third issue is money. It certainly helps if you've got a
good amount to back your purchases, but if you don't, it is not impossible to
do deals. You do need enough to be able to find properties, keep track of
properties and cover on-going office type expenses. I was once told,
"Money should never stop you from doing a deal". It's true. If you
have a deal, someone to invest in it is easy to find. If investors don't want
to invest, it's not a deal.
The fourth issue is knowledge. Federal tax liens, partial
interests, leased land, property information wrong, unpaid property taxes and
wrong common descriptions are all things that have hurt investors. If you are
not aware as to how to check for these things, you shouldn't be investing in
foreclosures. The things that will make a deal head south are the things that
are not obvious.
Time to evaluate strengths and
If you don't have a strong grasp of market values in your area,
aren't sure about your state's legal requirements, don't have significant money
to invest and don't know how to follow up on real property information, you
need to spend some time learning the things you will need. Read, make contacts
and talk to people involved in the business. They are easy to find, they will be
at local Trustee or Sheriff's Sales. However, if you have a good knowledge of
the requirements and think you can learn as you go along, you can probably
pursue this market.
You've decided you have the knowledge and the resources to
follow the foreclosure marketplace, so the next step is, what are you going to
follow? Procedures are very different for following pre-foreclosure compared to
properties already foreclosed by financial institutions.
everything! If you don't know what properties are scheduled for sale, you are
wasting your time. You need to know what properties, how much the loan amounts
are and what timeframe you are dealing with. Local newspapers will publish the
properties scheduled for sale, this will provide some information and all you
have to pay for is the newspaper subscription. You can also go to the county
recorder and research documents yourself, but the best way to follow these
properties is to subscribe to a service that obtains records and sells the information.
The best services give complete, accurate information and others provide the
basic minimum, but it saves time spent looking them up for yourself. Once you
know which properties are in default, you can approach owners directly to sell,
arrange financing to save the property or whatever seems appropriate for all
the parties involved. Door-knocking, mailing information or telephone contact,
it's all based on knowing which properties fit your criteria. You can find some
providers of information at Pre-Foreclosure
Listings or you can go
to the sale sites in your area and ask the investors who show up for the sale
what local providers are available. If they don't want to tell you, ask someone
else until you get the information you need.
Banks are driven by numbers. Their non-performing assets do not
generate income, they require reserves to be set aside in addition to the loan
amount and large numbers of non-performing assets do not look good on the
bottom line. So, if the financial institution doesn't really want to be
carrying these properties, why don't they sell it cheap? First, if a bank has a
large portfolio of bad loans and they do not want to carry them on their books,
they sell the loans as a portfolio at a discounted price to companies in that
business. Second, if they have taken a property back and now own it, why
wouldn't they want to get as much as they can for it? It's called cutting your
losses. If you want to buy from a bank, find properties you might be interested
in by either following the auction sales or using a service that gives you
fresh REO information. Fresh information will allow you to put an offer into
the bank before they will have any additional costs in the property and will be
more likely to cut a deal. Your best opportunities are going to be properties
that need a lot of work, have something wrong with them, or that are in a
slower moving market. Banks seem to take forever to respond, place an offer
with limited acceptance period, wait out that period, then go on to other
things. Placing an offer at 60% of market value is something that probably
won't fly. Be realistic about the property, your requirements and the bank's
position and an offer just might be accepted. Another possibility is to look
for the dogs. Properties that have been on the market for a long time either
are overpriced, are ugly or have some other problem. If you feel these problems
can be overcome, a bank just might be willing to sell at a reduced price.