July 9th, 2009 | 
Author:
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.
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