Due to the poor economy and fears of a recession, several people are losing their homes to foreclosure. Companies are cutting back on employees by 10% or more. Chrysler just announced they need to cut 25% of their current salaried employees. If these employees don’t have a good savings account or other investments to fall back on, they will probably be at risk of losing their homes.
While this isn’t a good time for home owners, it is a great time for investors. The great thing about profiting on foreclosures is that anyone can do it. The best way to purchase a distressed property is to work out a deal with the current home owner. Home owners that find themselves in a foreclosure position are anxious to do whatever it takes to get out of the home and save their credit and personal finances. A foreclosure literally wipes out all the equity in a home and can destroy an individual’s credit for years.
Investors love to shop for foreclosed properties because they are able to get a terrific deal on the property. Most investors are not looking to stay in the home, instead they want to buy it, fix it up a little, and sell it for more money. Everyone that invests in a foreclosed property will undertake some risk. There are three different ways investors can go about purchasing foreclosed properties.
|
Foreclosures and Profiting:
Profit on Foreclosures Whats the Best Way to Profit on Foreclosures The Stages of Foreclosure Profiting from Foreclosure Tips for Profiting from Foreclosures What is Pre-Foreclosure? Foreclosures and How to Be Sure of a Good Return Profiting from Bank Foreclosures Foreclosures Profiting from Your Pain Profit and Foreclosures |
A pre-foreclosure is the first way an investor can acquire a foreclosed property. A pre-foreclosure is the best stage for the home owner because they will be able to get out of the home without further damage to their credit rating and finances. During the pre-foreclosure stage, the investor and the home owner can discuss a price and transfer the home before they have to discuss information with the lenders.
During the pre-foreclosure period the home owner is basically in a “warning” stage from their lender. Depending upon the state, the home owner has a grace period, usually 6 months or less, to make up the missed payments and pay the penalty fees. A home owner can pay off the default during this time and save their property. If they cannot come up with the money, they have the option to sell the house.
When the home owner sells the house, they usually can get more money out of it than if the bank sells it. A lender simply wants to sell the property as soon as possible. When a home hits this stage, it is prime time for investors to jump in. Investors are able offer the home owner a reasonable price and it is up to the home owner to accept it. Real estate agents, attorneys, and word-of-mouth are the best places to find homes that are in pre-foreclosure.
If a home owner is unable to accept the offer from the investor, their home will go into the foreclosure status. When a home is in the foreclosure stage, investors can find these houses through the County Clerk’s office. Some offices will place investors on a list that will email them with new properties that are in pre-foreclosure or in foreclosure.
There are two main types of foreclosures, a judicial foreclosure and a non-judicial foreclosure. A judicial foreclosure pertains to the mortgage and non-judicial foreclosures pertain to deeds of trust. A judicial foreclosure takes longer to complete than a non-judicial foreclosure. With a non-judicial foreclosure, a trustee is involved in handling the process. After the property completes the judicial or non-judicial phase, the property will then go to auction.
Investors love the post-foreclosure phase. During this phase, the property is auctioned off to the highest bidder or it is sent to the real estate department (REO) of the lender to sell the property. Lenders are anxious to unload the property as soon as possible when they use an REO because it looks bad on their part because it shows they trusted a borrower that was not able to pay their bills. Private investment companies often purchase homes from the lenders and turn around and sell them for a higher profit margin to other investors. Most investors will not get the same deal they normally would through an auction or pre-foreclosure, but it is better than the asking-price of most sellers.
In order to start profiting from foreclosures, investors need to understand all the facts about pending foreclosures. Some web sites will sell investors a list of potential foreclosures, but you can get the same information from the Sheriff’s office or County Clerk’s office. One thing investors need to watch for is the value of the home. Quite often the REO homes are severely damaged by the home owner that was evicted from the property. Banks are anxious to dump those damaged properties and investors can make a 15% to 20% profit off of those properties.
A good investor is always on the lookout for a motivated seller. When individuals are in financial turmoil and in pre-foreclosure, they are anxious to sell their home. Those home owners want to get out of the home and quite often take any offer that comes their way. A lot of investors seek out properties that are in need of repair in order to fix them up and sell them for a handsome profit. Purchasing a fixer-upper is a risky business especially if the property is acquired at auction. The downside to purchasing a property at auction is that it gives the investor little or no time to inspect the property. For many investors, the repairs cost more than the savings they think they acquired by purchasing the property at auction. An investor doesn’t have the luxury of checking the plumbing and other aspects of a home before they bid on it at auction. The longer it takes to repair a home, the more money the investor loses in insurance payments and mortgage payments. Several investors have mastered the fixer-upper methodology and are able to buy the house and “flip” it within a day or two, placing it back on the market within 48 hours.
The best way to flip a home is to have a buyer in place before the home is purchased. Investors can purchase the property and sell it to a buyer for a set number. Quite often the profit margin from this type of investing is small, but there is still some profit in it. The strategy behind flipping properties is that an investor will be able to repeat this process several times and will end up with as much money as an average mortgage by the end of the year.
Most foreclosures will be listed online. Realtors often have the inside “scoop” on foreclosed properties and can tell investors about those properties before they hit the internet and other public records. Another way to find out about foreclosures is to advertise. While this may seem tacky, home owners will call when they get desperate. Perhaps your neighbor is in pre-foreclosure, by informing them about your potential interest, they may call you when the lender starts pressuring them for the money. Inform home owners that you are able to help them avoid foreclosure by selling their house to you. Not only will you provide the home owner with an opportunity to cut their losses, but they avoid ruining their credit by having the lender foreclose on the property.
A final way to profit from foreclosures is to open a junk removal business. Homes that have been foreclosed on usually are full of furniture and other valuable assets that the home owners leave behind. Several investors have learned that opening a junk removal business allows them to profit on these assets. Companies contact the lenders of foreclosed homes and contract with them to clean out the home and remove all the assets. These assets usually become the possession of the junk removal company and can be sold to the general public. Some junk removal companies have reported earnings of over $1 million just from removing the assets from each home.
Right now is a perfect time to start up a junk removal business since so many homes are in foreclosure due to the current economic state of the country. Unemployment is on the rise and many people are unable to afford their mortgages, this makes it an ideal time for real estate investors or junk investors.
Investing in foreclosures is not a get rich quick scheme like many people think. Over bidding on properties can leave investors in financial ruin and it can cause them to be in the same position as the homes they have bid on from other home owners. One of the critical parts of profiting from foreclosures is deciding when to jump into the foreclosure stage. Some investors prefer pre-foreclosure since they can negotiate a price with desperate home owners. Other investors like bidding on properties at auctions, while others prefer negotiating a sale with the lender. Whatever stage investors decide they want to jump into foreclosures, they need to know what they are doing and be sure they can actually make a profit and not ruin their own credit and financial position.