Real Estate Investing Foreclosures
By D. S. Peter, Fri Dec 9th
Real Estate Investing foreclosures Author: DS Peter
First thing I would suggest regarding foreclosures learn asmuch as you can on this subject. foreclosures are considered tobe very complex type of real estate investing. Second importantthing for the real estate investor is - study the local market.Be sure and follow up to see what the properties sold for andhow quickly. You need to be an expert on local property valuesif you want to be a successful real estate investor, in myopinion. Where do I find foreclosure or pre-foreclosure deals?The best way is go to the court house and search the Notices ofDefault/NOD and the Trustee's Sale/Foreclosure listings. Otherthings you might consider find an experienced agent that willshow you foreclosure listings. They know which web sites offerup to date foreclosure listings. Start interviewing agents tofind one that is an experienced investor as well, who has donewhat you plan to do. When you buy these properties the agent'scommission is paid by the clearing house. The advantage of goingto the court house is you have a good chance to make a dealbefore anybody else knows about it. When it is on the internet,thousands know about it. If the foreclosure sale is an auctionin your area, start your bid small and see what happens. Knowhow far you will go prior to starting the bidding as thebiddings go fast. You might want to start the bid at $2,000,watch the bidding, keep bidding when needed, and stop yourbidding when it goes over where you are OK at the amount. Get aforeclosure attorney should you need a help (most likely youwill if you are beginner). Another thing you want to take intoaccount is the redemption period (if you are doing business in aredemption state). Some redemption states for example have 6month right of redemption. Which means the original owner has 6months to buy back his/her property. It can be even longer ifthe house was bought in a year when the redemption period was 12months before they changed the law and made it 6months. Now thenew buyer (you in our case) will be stuck with 12 monthredemption. Which means you cannot sell during that period. Thisin turn can make a huge difference in holding costs for you. Tomake it clearer, let's say you bought a house at a foreclosureauction for $60K on the 2nd of January 200X, the amount owed tothe bank was $30K which they received after the sale and theowner got his/her check for $30K (minus all expenses in moststates the amount above what is owed goes to the owner). Theformer owner comes on the 29th of May year 200X and he/she canlegally buy back the property for $60K (plus all othertransaction costs). If the house was in bad shape and you putmoney to fix it, you might consider it gone as well. Theimportant thing to keep in mind in redemption states is theredemption date and holding costs (buying right is always a rulenumber one in any real estate deal). Now let me show you ageneral pre-foreclosure real life case scenario you most likelywill encounter numbers may vary, but the concept is the same. Anote holder (private party or a lender) wants out since theowners quit paying
The balance on the note is$25,000 and the house is worth about $60,000.
(We assume this isa properly executed and recorded first mortgage.)
Offer the noteholder $17,000 to $19,000 for the mortgage (cash, or
paper ifthe circumstances allow). After you have purchased the mortgageyou
will have to get them (the original buyers) to deed to youin lieu of
a foreclosure by offering them some money (offer them$15,000 or more
in our case) to move and deed out or forecloseon them. Don't forget
to get TITLE INSURANCE. (To make sure youare not getting into some
sort of mess, which could be quitetroubling and costly if not noticed
on time). Let's say you paid$19,000 to the bank and $20,000 to the
owner that makes $39,000+ $3,000 closing cost (at the most) = $42,000.
You got $18,000in equity. You can either keep it as a rental or sell
it andmake a nice profit. Sometimes the owners won't move out. Here
isvery well working trick if you foreclose and the occupants(works
with tenants too if you hold rentals and have the sameissue) do not
want to leave. Offer them moving allowance of$1,000 if they move within
10 days, $800 if they move within 14days, $600 in 20 days. It won't
be long till they leave. Theamount varies based on whatever the deal
allows. When you find aproperty way below market never take more than
50% of its marketvalue. Instead share it with the owner. There are
some consumerprotection laws and you cannot "unjustly" gain because
ofsomeone else's misfortune. Some states (California for example)have
tough rules, so if you want to play the foreclosure game,you have to
learn and play by the rules. If foreclosures are toocomplex for you, there are other ways you can make money in
RealEstate, but if you happen to come across a good pre-foreclosureor foreclosure
deal consult a local attorney who doesforeclosures to guide you through the process.
If you want toinvest in foreclosures learning your state's foreclosure lawbackwards and forwards is very
important. Here are a couple oflinks to websites whit articles on Real Estate
Investing whereyou can learn different techniques from other investors:http://www.buying-investment-property.info/
andhttp://www.realestate-investinginfo.com/ . One good thing toremember which
will save you time, money and efforts try toalways work with motivated sellers.
Oftentimes the owners inpre-foreclosure are in denial with their situation and
need tobe brought back to reality. You have to know how and what totalk to them
in order to get them sell you the property at yourprice. You have to motivate
them. There are tricks to the trade.Learning is a never ending journey.