Great Foreclosure Deals

In real estate, the goal of the game is to find a DEAL. Without a deal you cannot get paid. That being said, the hardest part of real estate is finding the deal. Many people think finding the money is the hardest but that is simply not true. Remember Field of Dreams? The memorable line from that movie is “Build it and they will come.” It is similar in real estate: Find it [the Deal] and they will buy. But how do you find the deals?

One technique is to look in the foreclosure market. According to the USA Today in their July 31, 2007 edition, U.S. home foreclosures are up 58% over the first six months of 2007. Can you see how that market is exploding? Can you see how there is a lot of opportunity in foreclosures? Most people are getting scared to get in real estate because they focus on the coming crash. That is stinkin’ thinkin’ in my opinion. There are opportunities in every real estate market, but the key is to focus on the parts of the market that stand the best chance to yield you the best deals. When you think about the huge increases in the amount of foreclosures, you brain should be spinning about how many of those could be deals for you and your business.

How do you work the foreclosure market? Well there are three areas where you can look for deals. The first and least attractive arena is in bank-owned properties, aka REO’s. The issue there is that banks are not that motivated. And everyone in real estate knows that all deals start with a motivated seller. Why aren’t the banks motiveated? That can be answered with a couple of different scenarios. First is that many loans that are being foreclosed on are government insured. They are FHA and VA backed meaning that when a bank forecloses on the property, the government in the form of the Housing and Urban Development department will step in and pay the bank. The property then becomes the property of the US Government. Then, if you try to buy the house from HUD, you will find that they are not too motivated either. The reason is that you are dealing with some government beaurocrat who has no skin in the game. Also, HUD favors selling to homeowners—not investors. Can you find deals from HUD? Sure, but you have to ask yourself if the extreme amount of time you will need to invest will be worth it when you don’t get too many of the deals.

Another way to cash in on the foreclosure explosion is to go to the courthouse on foreclosure day. There, you can typically buy a property for less than retail value, but you must do it an auction. If you have ever tracked something in Ebay, you have probably noticed that the price began to skyrocket as the auction deadline approached. The parties bidding on the product get excited and begin to bid the price up. The same thing happens at the auction step. If you go to the auction, you are likely to see hundreds of investors there bidding on property. The winner gets a property for less than retail, but because of the bidding war, the price ends up being higher than if they bought the way we prefer to buy foreclosures: pre-foreclosures.

In order to get a deal that is in pre-foreclosure, you will need to find the sellers who are in trouble. The easiest way to find these people is to comb through the notices of default that are filed at the courthouse. These notices are required to be filed before a lender can foreclose on a property. Your goal then is to contact those home-owners before they are foreclosed on. You do this with two methods: marketing and direct contact. You should send letters and postcards immediately to the homeowners that are going to be foreclosed on. In your marketing, you want to let them know that you can help them stop foreclosure and that you want to help them. How do you stop the foreclosure? You buy it of course, but you don’t necessarily mention that in your marketing. The primary focus for the home owners will be to stop foreclosure. Press that motivation button to get them to call you and then you approach them with buying the property. The other way you reach the homeowners is by direct contact. What I mean by that is that you are going to go door-to-door to the houses that are going to be foreclosed on and knock on the door. That can be intimidating, but if you approach the situation with some tact, you should be able to quell the flames of ire that the homeowners have and get them in the mood to solve their problems. Once you have done that, the options are limitless. If the balance owed is cheap enough, you can buy the property out-right with cash or hard money or you could wholesale the deal for quick cash to another investor. If the numbers a little tight, then you may even buy the house subject to the existing financing. The seller will deed you the house and you will make the payments. This is great because the cost of money will be cheaper than hard money if you strategy is to fix and sell or if you want to hold the property as a rental, you don’t have to worry about qualifying for financing.

The opportunities in foreclosure are limitless, however the competition is too. There a thousands of investors out there hunting through the pre-foreclosure markets trying to find deals, so you need to make sure you are the first to contact the seller. After considering the amount of competition in that market, you may start to understand why I prefer to find my deals where NOBODY else is looking. Basically, I eliminate my competition by going where they won’t. I prefer to look for deals in probate (www.probaterealestatedeals.com). If you would like to learn more about that technique, visit my website and see why that is an awesome source of great DEALS with very little competition.