Archive for July, 2009
July 22nd, 2009 | 
Author: With the foreclosure epidemic, more and more investors are understanding the importance and the advantage of doing preforeclosure and pre-preforeclosure deals.
Problem is that despite being the hottest ticket in the real estate market today, a lot of investors are still at a loss on what preforeclosure and pre-preforeclosure deals are, much less how to effectively profit from them.
So here’s an ultra-simplified discussion of preforeclosures and pre-preforeclosures and how you can turn them into one consistent cashflow machine for you – especially in the middle of this economic meltdown.
I. Determining the owners of houses in preforeclosure and/or pre-preforeclosure
These homeowners are usually anywhere between 3-6 months (sometimes even up to 9 months) late on their mortgage payments. Some of them may have been kicked out of bankruptcy for not being able to fulfill their obligations within their bankruptcy plan, thus prompting the judge to kick them out of bankruptcy.
These homeowners have properties that are probably around 1-3 months away from being foreclosed on.
One should not confuse preforeclosures and pre-preforeclosures and mix them up. An easy way to determine which is which is, pre-preforeclosures are properties wherein the owner is way behind on his mortgage payments and has little or no hope of ever catching up but has not received a notice of default yet or a lis pendens. Whereas, preforeclosures are properties where the homeowners are way behind on their mortgage payments and have been served a notice of default and a schedule for auction has already been set.
II. Finding out where these properties are
Normally, pre-preforeclosures are pretty difficult to find. These listings are not available to the general public and that’s the reason why not a lot of investors are able to take advantage of them. One option of finding these listings is from lenders. However, the easiest way to access a list of pre-preforeclosures is to get it from www.DoDeals.com .
On the other hand, preforeclosures are easier to access as these are usually available at the local court house. You just need to ask the clerk to give you a list of properties which have been served a notice of default or a notice of trustee sale or has a lis pendens filed against it. Furthermore, there are a number of online list sources which provide preforeclosure listings – some are free (but would probably have less good deals) and some can be had for a fee.
III. Getting in touch with the owners of these homes
When getting in touch with these homeowners, you can either call them up or send them a direct mail or a postcard.
Sites like www.whitepages.com and www.ZabaSearch.com are able to provide contact information for these owners so you can call them up immediately.
If you plan to just send them direct mail or a postcard sent through the United States Postal Service, make sure you use handwriting fonts (or better yet, depending on how many you’re sending out, handwrite them yourself. The reason for this is for your mail to look a lot more personal. Believe it or not, this actually improves response rates.
IV. Here’s what you tell them
When calling the homeowners, you can use this script (or something similar):
“Hi, my name is Tim. I work with a group of real estate investors… We buy 3-5 houses per month in your neighborhood… I’m just calling everyone in the neighborhood and I was wondering if you would consider getting a free cash offer on your house?”
Also, make sure that when you talk to them, you should ask them the following stuff (as detailed in the WOWWW video):
- What is the property worth?
- How much do you owe on the property?
- What repairs are needed on the property and how much?
- Will you sell for what you owe on the property?
- What’s the least you would accept if I can pay all cash and close quickly?
In this stage, it is important for you to hammer down on a price that you’re comfortable with or a price that you believe will be good enough for you to make money on.
Typically, the last bullet above works like a charm in upping the price a few thousand more.
V. Get it under contract
Once you have a price that you’re comfortable with, put the deal under contract.
When going through this stage and you’re not sure about the deal (ie: you feel as if the market value is too low and the asking price is too high, or the property needs more repairs than you expected etc) just go on and put the property under contract but in the special provisions, make sure you put “subject to final inspections” or “subject to partner’s approval” so you have a way out in case you need to back out of the deal.
VI. Exit Strategies
This refers to what you’re planning to do with the property afterwards in order to convert it into cash.
Wholesale – you get the property under contract for as low as you can get it and immediately flip it to another investor for a quick profit. This works in any economy and is considered the easiest way to making money in real estate.
Rehab and Retail or Rent out – purchase the property, fix it up and either sell it retail or hold it as a rental property. Although this exit strategy is usually more profitable, it is not recommended in the present economy.
Subject to - Lease Option – if you get the seller to agree to sell you the property for what is owed on it, you can take over the payments and sell the house using a ‘subject to’ agreement or simply lease it out with an option to buy. This strategy also works today however, it would take a bit more guidance and looking into before newbie investors close deals using this.
You should take note that you don’t simply decide on your exit strategy depending on your whim. You have to take into consideration the prevailing market situation, the profit margin that the property offers you, the capacity of the buyer, the kind of funds that the buyer is bringing to the table and so on.
For more information on how to close deals in the present economy, check out previous post on Investing In Real Estate During A Recession.
People who looked at this item also looked at…
Related items
A lot of people say that it’s difficult to get deals nowadays.
While that may be true (depending on how you look at it and depending on how you do deals), that’s just one side of the coin. Once you actually find a seller willing to sell, the next big question that you get is, “Where do you get a hold of buyers?”
And that’s not even the end of it yet.
You may find a buyer interested in getting the property, but if he’s not qualified (he does not qualify for a loan or any conventional financing), then that’s no better than not finding a buyer.
So the better question will be, “Where do I find ‘qualified’ buyers?”
But again, that’s not where it necessarily ends yet.
What if you can’t find a qualified buyer (someone who’s approved for a loan)? What then? Do you give up and move on?
Not necessarily.
In cases where you find yourself in a situation where you have a seller willing to sell and a buyer willing to buy but is not qualified for a loan, you can always do “Creative Financing”.
There are several ways of doing this:
Owner Financing
This usually happens when the property being sold is ‘free and clear’, meaning the seller does not owe anything on the house anymore.
Since the buyer cannot qualify for a loan or a mortgage, the seller ‘acts as the bank’ for the buyer by deeding the house to the buyer and allowing the him to make monthly payments on the house, so much so that when the buyer fails to make his monthly payments, the seller can foreclose on the property.
Wrap-Around Mortgage
This occurs when the seller still owes the bank a certain amount on the property being sold.
So what happens is that the seller applies for a second mortgage on the house for the buyer and the buyer pays the seller monthly (with interest). The seller deeds the house to the buyer.
Since there are now two loans/mortgages on the house, the second one ‘wraps around’ the first one, hence the name.
Again, as with owner financing, if the buyer fails to make his monthly payments, the seller can foreclose. If the seller fails to make his payments despite the buyer making his, the bank can foreclose on the property.
Subject To
In this scenario, there’s an existing loan on the house. The loan remains in the seller’s name but the buyer will be making the payments to the bank and either pays the seller the difference (between the selling price and the amount owed) or making payments to the seller for it.
Contract for Deed
This is another common creative financing method where the buyer makes payments on the house and the seller only deeds the house to the buyer as soon as all the payments have been made and completed.
Lease Option/Rent-to-Own
As the name implies, the buyer agrees to pay a monthly lease or rental fee on the property for a specified period after which he has an option to purchase the property at the original price.
==
In all these methods, it is important to cover all necessary scenarios so as to protect the interest of all parties concerned.
At first glance, these creative financing strategies may seem like a lot of extra work (paperwork, that is) but when it all comes down to it, the point is being able to find a way to convert a property being sold into cash as quickly as possible without having to wait for a qualified buyer to come along – which in this economy may take a significant amount of time.
People who looked at this item also looked at…
Related items
With the Foreclosure Epidemic in full swing, a lot of investors are finding themselves more and more in the realization that one of the more profitable methods of going about their real estate investing business is to engage in short sales.
Problem is, short sales are complicated. In fact, they’re downright excruciating.
Regardless what ‘experts’ say about short sales being painted in bad light or about it being overly criticized for its inherent complexity as compared to more straight forward investing methods such as wholesaling and rehabbing, and that short sales are actually a lot less complicated than most people think of it, fact remains that doing short sales is something that you can learn in the fly and apply in a specific and relatively fixed 1-2-3 procedure.
Let me show you what I mean.
Listed below is a ‘short list’ of the steps involved in doing short sales. But before that, let me make a disclaimer. These steps are not all inclusive in the sense that these may vary greatly depending on the property, the state, the lender, the level of distress that the homeowner is in and a whole bunch of other factors that play into the short sale deal negotiation.
A. Determine the Value of the Property – this can be done by doing an evaluation of sold properties in close proximity to the house in question within the last 6 to 12 months. A licensed realtor who’s got access to the MLS (Multiple Listing Service) can do a Comparative Market Analysis (CMA) to determine this. However, investors would have to find a way to do this – which is usually to have realtor they know do it for them.
It does not end there though. Once you determine the Fair Market Value (FMV) of the property by averaging the selling prices of similar properties in the same area, you would also need to determine After Repair Value (ARV). This is the value of the house after repairs have been introduced to the property.
Most of these houses need to have some repairs done on them. Some more than others and some less. It all depends on several factors such as the sense of responsibility of the occupants, integrity of construction, neighborhood, etc.
Indeed, this step calls for a lot of math and analysis. Come up with an inflated estimate and your short sale deal would surely come crashing down like a house of cards. Undervalue the house and you’ll end up digging inside your own pocket to make the deal survive. In short, you would have to very precise in determining the value of the property so as to make the deal work.
B. Figure Out the Lenders Broker Price Opinion (BPO) – this is the main factor by which the lender determines the value of the property. It differs from the FMV in the sense that you determine FMV while the lender comes up with the BPO.
This is one of the trickiest parts of the short sale negotiation process in the sense that your FMV should be as close as possible to the lender’s BPO. Too much of a difference between these two values and you can practically say goodbye to your short sale deal.
Understandably, the lender’s BPO would normally be lower than your FMV. However, you cannot simply rely on this generalization. You have to come up with an FMV as close as possible to the lender’s BPO if you hope to have your short sale approved.
That having been laid out, this is one tough ‘mind-guessing game’.
C. Learn The Loan Types – there are different types of loans available for short sales and each one would have a different effect on your short sale deal.
For example, submitting a short sale with a conventional loan will give rise to a different set of requisites than a short sale submitted with an FHA loan. There’s also the same effect on the BPO as FHA loans don’t require a BPO but a Government Appraisal.
This knowledge will also be important in determining NET offers to be accepted by the lender as they have different minimum acceptable offers for both conventional loans and FHA loans.
It is therefore important that you familiarize yourself with the different requirements that go with different loan types so you don’t end up groping in the dark when push comes to shove.
D. Learn How To Deal With Junior Lien Holders – sometimes when negotiating a short sale, you find out that there’s a second mortgage on the property. Most of the time, you simply relate with the second mortgage holder the same way you do with the original mortgager.
But every so often, the second mortgage holder would have a separate set of requisites.
Remember, you are dealing with a lien holder who’s holding an over-leveraged asset (the house). This makes the plot a whole lot thicker.
This is usually where most investors stop before they totally lose their sanity.
I mean, it’s a lot to have to put up with the original mortgage holder’s demands. Multiply that by two and you’re looking at a prospective cause for investor ‘death-by-short-sale’.
E. Closing – provided you’re hardy enough to have reached the part where your short sale has been approved and that you’re actually going to close on the deal, ask yourself:
How much am I making on this deal? Is it commensurate to the amount of work I put into the deal? Will I be willing to go through another round?
==
Again, these steps are not all-inclusive. The steps vary greatly depending on the deal, the lender, the amount owed on the property, the level of distress that the homeowner is in and a lot more.
Now you know why “short sales suck” has developed into quite a cliché among real estate investors.
But, don’t get me wrong.
Short sales in this present economy, is a true gold mine as foreclosures are occurring left and right.
Luckily, a number of firms and companies have begun offering ‘short sales done for you’ services, wherein for a set fee (or a percentage, depending on the merits of the deal), investors simply submit a potential short sale deal to these companies and then they’ll be required to submit certain documents which are readily available through the homeowners themselves and then the third party company does the rest. The investor simply waits for the short sale to be approved and for it to be closed.
Being the number one real estate investing resource site, DoDeals.com has joined the short sale bandwagon by offering its Short Sales Done 4-U Service available to certain membership levels.
Many thanks go out to Cory Boatright whose article written at the DoDeals.com Coaching Corner became the main source of the materials used for this blog post.
5wtj7n8mdy
People who looked at this item also looked at…
Related items
There are two main reasons why properties go into preforeclosure:
1. The homeowner lost employment, whether permanently or temporarily, and as such cannot afford to maintain his mortgage payments
2. The homeowner is faced with other urgent financial commitments (ie: medical bills etc.) causing the him to fall behind on his mortgage payments and not be able to catch up fast enough.
And with the present state of the economy, more and more homeowners are finding themselves under the dreaded spectre of having their homes fall into foreclosure.
I don’t need to tell you that there are more homes going into foreclosure nowadays than in any other period in history.
The moment a homeowner receives a notice of foreclosure, his options become clear cut:
1. Find a way to come up with enough cash to settle his accounts (like win the lottery or find hidden treasure or something similar); or;
2. Sell the house immediately
Given that, I think the choice is obvious.
He needs to sell his house immediately so he can settle his account with the bank or the mortgage company thereby preventing his credit from being ruined and affecting his purchasing ability for years.
Once the homeowner decides to sell his house, he has three options:
1. Sell the house himself (FSBO)
2. List the house with an agent and cross his fingers that someone buys soon
3. Sell the house to an investor who’s able to offer creative terms
Given the fact that the country is experiencing a recession, finding qualified buyers the is almost a guarantee that the homeowner will not be able to sell his house fast enough to end his trouble. Listing agents and realtors are faced with this problem (and that fact is actually the reason why there’s a prevalent opinion that investing in real estate in this economy is a bad idea), more so for homeowners who decide to sell their properties themselves. Needless to say, the first two options are not the best considering the urgency of the matter.
Option three then is the most likely choice and that is where you come in.
As an investor in the present economy, you should be able to present creative alternative options by which to approach preforeclosure deals.
One common thing is to do creative financing which allows even non-qualified buyers to purchase the property under terms thereby allowing the deal to be closed in a short time thereby spelling good news for the homeowner and yourself. There are a number of courses on this matter that discusses step-by-step procedures on how to go about this and how to structure the deals in such a way that guarantees optimum payout with minimum risk to all parties concerned.
It may be true that you don’t make as much profit investing in preforeclosures than you can doing wholesale deals and other real estate investing strategies, but considering the fact that the number of properties facing the prospect of being foreclosed on continues to rise steadily, you don’t have to worry about finding the next deal. It’s simply the difference between 1 big profit that comes only once in a while or 10 deals with a relatively smaller profit but come regularly for an extended period.
I believe the answer is obvious.
Doing this, you end up making some money for yourself and at the same time helping the homeowner avoid getting foreclosed on and destroying their financial status and also helping the buyer get a house despite the fact that they can’t qualify for a loan.
Foreclosures is an absolute nightmare for homeowners and is certainly not a matter to be taken lightly but it presents a very unique opportunity to investors to make a killing in the market and at the same time help these distressed homeowners.
People who looked at this item also looked at…
Related items
See you.
People who looked at this item also looked at…
Related items
You don’t need to listen to me or any other guru to tell you that today’s hottest area in real estate investing is in foreclosures.
Since the bursting of the housing bubble, more or less 300 million homes have gone or are going into foreclosure. While this may sound like a nightmare to some (especially the homeowners concerned), it definitely poses an extraordinary opportunity for savvy investors to make a huge killing.
The only thing is, you have to know where you can find quality foreclosure listings.
Well, here are a few suggestions:
The MLS
The MLS or Multiple Listing Service is a good source of foreclosure leads.
All you need to do is to do a search of REOs or Foreclosures and in seconds, you can already start picking properties that may suit your fancy.
The problem with the MLS is that only licensed real estate agents have access to it. So if you’re a private investor but not a licensed realtor, you would have to befriend an agent first so you can get access to the MLS.
Real Estate Agents/Realtors
Since licensed real estate agents have access to the MLS, they can be a good source of foreclosure leads. You just need to find one who’s not bent on getting all the foreclosures for himself (which seldom happens since there’re lots of foreclosures or properties going into foreclosure nowadays).
A good way of finding the top foreclosure listing agent in your area is to search for REOs through the MLS (if you’re an agent yourself, you can do this easily. But if you’re not, you can get an agent to do it for you). Once you recognize a listing agent’s name that keeps popping up with a property, you’ve probably hit paydirt.
It would be a good idea to introduce yourself to that agent and start a good working relationship.
Real Estate Signs
When you drive around neighborhoods in search of deals, be on the lookout for signs that read: Foreclosure, Bank-Owned, Bank Repo etc.
Once you see these signs, contact the listing agent named on the sign and make an inquiry about upcoming foreclosure listings. This is because some agents, wait for the bank to set a price for foreclosed properties before putting them in the market. So if you ask for properties that are not yet listed, you’re getting way ahead of other buyers.
Again this calls for a lot of good communication and inter-personal skills.
The County Clerk’s/Local Recorder’s Office
You can get copies of individual recordings of properties that have gone into foreclosure through the County Clerk’s Office. And since these records are considered public documents, you don’t have to pay anything.
You can simply photocopy the recordings you find interesting and go from there. Listings in these offices are usually updated on a regular basis so it can be both a daunting research work or a treasure trove of deals – depending on how you look at it.
Asset Management Companies
Investment Management Companies or Asset Management Companies such as JPMorgan Chase, Capital Group, Northern Trust, Fidelity Investments, Merrill Lynch and Co., Keystone Asset Management, HomeEq Servicing, Premiere Asset Services and others are commonly hired by some lenders (ie: banks, mortgage companies etc) to handle foreclosures on their behalf.
Banks usually do this because of the fact that they are not in the business of owning homes and in the event of a foreclosure epidemic, they would more likely hire an asset management company to handle their foreclosures than to take of it themselves.
The Internet
In the present age of the information superhighway, anyone who knows how to point and click a mouse can get all the information they need from the internet – and foreclosure listings are among these.
Some banks and major lenders usually post their foreclosure listings online for the purpose of having an interested buyer approach them for it. But if you’re really ‘lazy’, there’s a bunch of foreclosure listing websites you can visit to get a hold of this information.
Most of these websites offer trial periods (usually 30 days) during which you can access their website and their foreclosure listings for free. After the free period, you will be charged a ‘subscription fee’ for continued access and usage.
There are sites which offer unlimited free access to foreclosure listings. However, most of these sites provide very little detail and information about the properties. It is always preferable to go for paid websites as the information (and service) they provide are much more in-depth.
An example of such a website is DoDeals.com.
==
In all these options, it is important for an investor (especially if you’re just starting in the business) to always be on the lookout for the choice that would give the most bang for your buck.
This is mostly true in subscribing to foreclosure listing websites. As a general rule, you should look for sites that not only offer foreclosures, but also a whole range of other types of leads.
After all, foreclosures may be hot today, but who knows what market will take center stage tomorrow.
People who looked at this item also looked at…
Related items
