In Foreclosure Investing, It Is Who You Know

You’ve heard it before: It’s not what you know, it’s who you know.

And when it comes to foreclosure investing, that is particularly true. Who you know can really help you get killer deals.

So what you have to do if you are to succeed in any kind of real estate investing is develop some contacts. As follows:

** Contact 1: Mortgage Reporting Service
You need a place where you can pull credit reports online and get an account set up before you buy your first property. Make sure you ask for residential qualifiers for a landlord. Factual Data is a good mortgage reporting service. Look them up on the Internet and get all the details.

** Contact 2: Realtor
The right real estate agent is like a pot of gold. These are the qualities you should look for when choosing one:

1. You need a real estate agent who is an expert in the city you want to target. He or she should be able to give you up-to-the-minute listings and provide you with a pretty accurate property value.

2. Make sure your real estate agent has a working knowledge of distressed properties, foreclosures, repo properties and properties listed by HUD. The last thing you want is an agent who specializes in $500,000 properties, because he or she won't be of much help to you. Clear that matter up with them the first thing.

3. Also, make sure your real estate agent is someone you can get along with, someone you feel comfortable dealing with. In this case, first impressions really do mean a lot. Don't put up with Realtors who set themselves above you or are condescending toward you. Many of them won't talk to you unless you're pre-approved for a loan or can show them you can buy the property you are asking about. If you're not pre-approved, just tell them you have the financing arranged and you’re just looking to find a Realtor to work with long-term.

4. Finally, make sure you have every possible way to get in touch with your agent. Nothing is more frustrating than not being able to reach him when you really need him. In this age of instant communication this shouldn’t be a problem, but nail it down nonetheless.

There is a website called INeedAGoodRealtor.net that can help you find a qualified Realtor in your area.

** Contact 3: Appraiser
Here are the guidelines for finding appraisers:

1. He or she must be approved with most lending institutions. This will save you from pulling your hair out when getting an appraisal and spending $300 just to find out you need a new one because he wasn't approved with that particular lender. Believe me, it’s much easier to find a new appraiser than a new lender.

2. Your appraiser should be friendly and easy to talk to. You'll find that some appraisers won't give you the time of day. Let me stress again how important it is to have good communication with your appraiser, because he or she is the best source to tell you whether a deal is good or bad.

3. Most important, your appraiser should be able give you a ballpark estimate on what a property is going to appraise for AFTER it's fixed up. Some appraisers won’t provide this service, and some may charge you for it. If you're lucky enough to find an appraiser who will do it for free, great, but if you can't I wouldn't spend any more than $25 per deal.

Getting a post-repair appraisal estimate is absolutely essential to every real estate deal, so you can't skip it.

** Contact 4: Title Company
A title company will issue your title insurance, check to see whether there are any outstanding liens on the property, and close your deals. Note: In some states, a lawyer will do that for you. Check to see what your state does.

Here are some questions you should always ask a title company prior to using them. This should be done before you even make an offer on your first deal:

“How long does it take you to run a title search?”

Ask if they offer rush service. Time is money in this business, so you need a company or lawyer who will do the job quickly. Some companies take two weeks to do a report. Multiply that by 10 to 12 deals a year, and you're losing about 20 weeks a year. That's almost 5 months spent just waiting. That's idle time, and you'll never make money in idle time.

“Does this title company have a ‘wash agreement’?”

Here is how a “wash agreement” works: Say you run title work on a specific buyer of one of your properties only to find out that buyer has several judgments or tax liens under his name. That means he won't be able to get a clear title to the property. Does the title company make you pay for that title search, or do they just disregard it? Most title companies will disregard it and not make you pay. That's the type of title company you want to work with. If you do enough real estate deals you're eventually going to run into a buyer who cannot get a clear title to your property. So you want to make sure the title company doesn't charge you for the initial title search. The best way to find this out is to ask in advance.

“How backed up are you on closings?”

You do not want to work with a title company that has to clear a six-week backlog before they can even think of getting you to the closing table. Remember, time is money and you want fast service. You should try if at all possible to pick a title company that can give you a closing the very same week you call.

** Contact 5: Home Inspector
If you don't have a basic knowledge about what to look for in assessing a home to be rehabbed, or if a home is severely damaged, you'll want to call on the services of a home inspector. After you do a few deals you'll be able to spot the problems yourself when something is seriously wrong. But in the beginning it is a good idea to use a home inspector, because if you don't know what to look for you can get burned pretty badly. Remember, we are dealing with distressed properties, and we want to make them livable and safe for the new owner.

Look for a home inspector who will do his job for about $100. Don't pay $300 for a home inspection, because there are several places that will do a good job for $100. In an emergency you could pay up to $200, but that should be the limit.

Here are some basic things to look for, things that tend to be recurring issues with rehabbed homes.

1. Turn on all the water faucets to make sure they work.

2. Check the electricity to make sure all the outlets work.

3. Check for termite damage, which unfortunately is common with many distressed homes. A home inspector can tell you right off the bat, but if you choose not to use one you should know how to look for termite damage yourself.

A website called HomeInspectorLocator.com can help you find inspectors in your area.

** Contact 6: Handyman/Temporary Work Service
If you hire a big company to do the rehab work for you, you'll never see a profit. Nothing against big contractors, but you want to make money with your real estate deals, not lose money. Big companies have a lot of overhead, insurance and marketing costs, employee costs, etc., so it is hard for them to compete when it comes to minor repairs.

Your first option is to find a local handyman service. You’ll get a good idea of the major repairs needed from your home inspector, so you can tailor your questions to the exact type of work you need done. Here are some questions to ask to get an idea whether they would make a good handyman for your properties:

“Do you have drywall and painting experience?”

This is a must, because 99 percent of the houses you buy will need this work done.

“Do you have plumbing experience?”

Ask what type. Can he repair or replace water lines? When buying older houses you're likely going to run into some water line problems.

For example, let's say the three-bedroom, one-bathroom house you bought doesn't have hot water pressure because the waterlines have rusted out. There are two ways of solving this problem. One is the amateur investor way; the other is the professional investor way.

The amateur investor will call every plumber and handyman he can find, tell them the water doesn't work and ask if they can fix it. Sure, someone will come out and fix it right away and be more than happy to send a $1,500 bill to you. They could tell by the way you asked that you didn't have a clue about plumbing, and you were totally at their mercy.

The professional investor would call the plumber/handyman service and say he needs a new hot water copper supply line (or whatever type is used in your area) to the kitchen and bath. Next, the professional investor will ask his handyman how much he charges by the hour. You'll always want to pay by the hour instead of by the job.

You may think that because you can't be there all the time the handyman might lie about his hours. Well, that may be true, but first you're going to ask him for an estimate on the amount of time it will take him for this specific job. Most handymen don’t want to sit there in a vacant house by themselves and not work. Nine times out of 10 a handy man will be honest with his hours and it will save you a ton of money. Their reputation is on the line, and word travels pretty fast about lazy workers in this industry.

This is how the pros make money in real estate. You have to know what to say and who to say it to. It may seem kind of trivial at first, worrying about $100 here or $50 there, but it adds up in the end. If you can understand why this needs to be done – so you walk away with a bigger profit – you’ll be more apt to become detail-oriented.

That doesn't just go with plumbing. You have to use this technique with all repair work. Always hire by the hour (if at all possible) and always supply the materials. You also want to ask your handyman if he has experience in heating, cooling and electric; almost all of them will. If they don’t, ask if they can recommend someone.

Now if you can't find a handyman who knows a certain trade, a temporary work agency is a good place to look. When you hire a worker from a temporary agency you'll pay them a flat rate per hour that generally is pretty reasonable.

Here is what you should ask a temporary agency before you decide to use them:

“Do you carry your own worker's liability insurance?”

Ninety-nine percent of them will, but you have to remember to ask this question if they don’t tell you.

“What type of skilled trade workers do you offer? Can I get a different rate for each one of them?”

“Do you guarantee your workers?”

What this means is if you get a worker who doesn't want to work, will they remove him and not make you pay for the hours he was there? This is important, because unproductive labor can eat up your profits pretty quickly. If they tell you no, then simply ask politely how they would handle a situation like the above.

Contact 7: Insurance Agent
A good insurance agent is worth his or her weight in gold. A lot of beginning investors buy a property before they find someone who can insure that property. The vast majority of insurance agencies will not give insurance on a vacant dwelling. This is a big problem when working the foreclosure and distressed property scene. So what you have to do is ask the agents a few simple questions:

“Will you insure a vacant dwelling property?”

Some people will tell their insurance agent this is a tenant policy, but that is the wrong way of doing things. If something happens to the house you'll be liable, not the insurance company. So don’t mislead your insurance agent. Just find an agent who will insure vacant properties.

“Do you require an inspection before issuing the insurance binder?”

If they do, you better have them inspect the house before you buy.

“How much is a vacant dwelling policy?”

These prices can vary greatly, so it pays to shop around.

** Contact 8: Loan Officer
Here are some things to learn and a few questions you should ask a loan officer or loan broker before deciding to go through them.

Since you're going to be going with lower income properties, you basically want a loan officer who specializes in the B and C credit range. B and C credit essentially means a person with not-so-perfect credit. These loans are generally much harder to close than a standard credit borrower loan.

Also, ask whether they have no-seasoning refinances. This is simply a loan program that allows you to refinance if you own the house less than a year. Nine out of ten lenders will not refinance a house that you haven't owned for at least a year. This is a huge problem for some investors who want to keep their units as rentals. Because in the beginning, you're going be strapped for cash and you obviously want to take a big chunk of equity out of the house and put it in your pocket. So make sure you ask the loan officer if they offer this type of program in case you ever want to refinance. Seasoning just means how long you own the house.

Also make sure to ask what the minimum credit score they can lend on is, and what the loan to value (LTV) is.

Ask what they will charge to do the loan. Some sharks will want to charge 10 percent of the loan amount. There’s no way you should accept a number like that. Ask how long it takes for them to lend money. You don't want to be waiting 90 days for a closing. Have them complete it in under a month.

Once again, here are the mandatory contacts you should make prior to looking at any real estate deal:

** Mortgage Reporting Service

** Realtor

** Appraiser

** Title Company

** Home Inspector

** Handyman/Temporary Work Service Agency

** Insurance Agent

** Loan Officer

They can help you make a fortune.