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Table Of Contents
1. How to Find a Real Estate Bargain (pre-foreclosure)
2. How to Negotiate With Pre-Foreclosure Sellers
3. What is a short sale and how do I make money on one?
4. Build A Fortune With Real Estate Foreclosures And Short Sales.
5. Build Massive Wealth With Foreclosures.
1. How to Find a Real Estate Bargain (pre-foreclosure)
If you are thinking about becoming a real estate investor you need to focus on the method that will make you the most money. Most investors find a piece of property they like, get a loan, buy it and then hope it increases in value so they can make a profit. This is not the best way to make money in real estate investing.
The secret to becoming rich with real estate investing is to buy property that already has profit built into it. This is hard to do when you are trying to buy a piece of property when the owner is trying to get as much profit out of it as he can. The way to buy property with profit in it is to buy from someone who really needs to get rid of it.
One of the best ways to do this is with pre-foreclosures. Pre-foreclosure is the period between an owner being behind on payments and when a bank forecloses and takes a property back that. If an owner is behind on his payments and thinking of sell this is not normally public knowledge, It usually becomes public when the bank files a notice of default or whatever instrument that state uses to start a foreclosure process.
Most states have either trust deeds or mortgages as the principal part of the real estate loan. A typical foreclosure in a trust deed state has the lender filing a notice of default to start the process. The owner has a certain number of days to bring the loan current. If he doesn't then there is an advertising period in a newspaper and at the end of that period the lender takes back the property and puts it up for auction. We want to buy it before or during the 90 day period.
Even though we are going to try to buy before the property becomes public knowledge or at least before it goes to sale you should know as much about the entire process as possible. You want to help people who don't want to sell their home and would like to save it. Help them now and if they decide to sell later they will remember you. I've had owners call me a year after I first talked to them to let me know things didn't work out and they needed to sell.
The best time to deal with a pre-foreclosure is before anyone else knows the property is in trouble. There are a number of ways to do this. First of all pick a working class neighborhood to "farm". A neighborhood with 300 or so homes is big enough to start with, as you can always expand
it. Concentrate most of your effort on this area instead of chasing all over. I walk for exercise so I make it a point to walk in my farm area and combine my exercise with the methods I describe below:
1. Bandit signs-Most cities have rules about putting up unauthorized signs hence the name bandit. The best way to do them without getting caught is to put them up on Friday night and take them down on Sunday night. This is a lot of work but you can hire some kids to help. A simple sign that says "I buy houses" and a phone number is all you need on it. Keep them simple because you will lose some over time to kids, homeowner and possibly the city. .
2. Door hangers-Every couple of weeks go through your farm and put out door hangers. If you just have flyers saying you buy houses you'll start making some people angry. I started putting public service or coupons on the back which made solicitations a little less obnoxious. The public service could be a garage sale announcement, a school swap meet, church summer camp or something similar. The way I did the coupons was I went to a pizza parlor in the area and offered to put a special offer coupon on my flyer if they would pay for the paper. Use your imagination and all kinds of things will come to mind.
3. Flyers-If a school or church in the area is having a swap meet or something similar you can often get them to let you pass out flyers there, especially if you have advertised for them with your door hangers.
4. Send out letters-With postage so high this may not be too good of one if you are just starting out.
5. Phone-Sometimes you can contact them by phone although many times it has been turned off. Often the neighbors may have a way of reaching them, at work or by cell phone for instance.
6.. Cruise your farm-Walk, bicycle or drive around your farm and talk to people. Most people are friendly and somewhere in the conversation ask them if they know anyone in the neighborhood that might be interested in selling. Don't mention foreclosures, just say you like the neighborhood and would like to buy a house there..
There are a lot of other methods you can use, but these will get you started and you'll think of others.
At the same time you are working your farm you need to be checking the notices of default (NODs). These are public information and can be found in several different places:
1. Online-Several companies provide NODs everyday for a fee. The problem is they are a week or so old when you get them.
2. Subscribe-There are also companies that will send them to you by mail, again they are old.
3. Recorders office-Typically the county recorder prints out a copy and puts them in a book which you can look at, usually the day after recording. Some offices have microfilm and machine you can use. This is how I started, until I could afford to subscribe now I use the one method
described below.
4. Recorders website-The best way I've found is to go to the recorders website where the NODs are normally online the day after recording. This is the quickest and easiest method and it's free. Unfortunately not every recorder has this service.
When you find a NOD filed on a house that might be of interest you need to gather as much information about it as you can. This can be done online, through a title company website or with a real estate agent. Get friendly with an agent because they can be of great help to you.
The information you need on your NOD or pre-foreclosure lead is the mortgage amount (find all the loans), information about the property, who actually owns the property, what houses are worth in the area, etc. Learn as much as you can before you contact the owner about buying the property.
Having all the information on the property and knowing about the foreclosure process will give you leg up when dealing with an owner. Don't try to act like an expert or professional unless you feel that's what the owner is looking for. Try to be the same type of person as the owner. I normally go to meet them in ordinary clothes and driving my pickup. Don't go to a working class neighborhood in your suit and driving a Mercedes.
3. How to Negotiate With Pre-Foreclosure Sellers
Don Levy
When you find locate a pre-foreclosure that looks like it would be deal you need to learn how to buy it. If you've got all the information on the property you're ready to make your first contact with the owner. Probably the best way is to knock on their door or try to catch them outside. This is fairly easy when no one knows they are in trouble.
Once the owner's problem becomes public knowledge they start being contacted and knocking on the door is hard for many investors just starting out. People will call you names, threaten you and even sic their dogs on you. I've had all this happen to me. If this doesn't sound like the way you want to contact them then you need to try phone them, send them a letter or just put a note on their door.
If the owner will answer the door don't negotiate on the porch. Try to get them to invite you in or if they don't time then make an appointment for later or at least leave them your number on piece of paper not a business card.
If you talk to them on the phone don't discuss buying the property. Make an appointment to meet them face to face.
When writing a letter make it personal instead of using form letter or making it too professional looking. Hand write the address and your return address. Use your home address and don't put a company name on it.
If you leave a note make sure it's on a scrap of paper or page from a notebook. Don't ever use a business card.
When you first meet with the owner you need to remember the first rule of negotiating and that is never be the first one to mention a price. The worst thing you can do is say anything about price. If they press you tell them you're not an expert in property values and you would need to make some calculations after looking at their house. Until then you don't have a clue. Ask them what they think the property is worth and why. What ever they tell you don't act too interested and don't disagree with them.
Your body language is going to help you let the owner know that his property is not worth as much as he thinks it is. You need to act uninterested no matter what the owner tells you about how wonderful the house is. Be friendly and steer the conversation to other things than his house.
Repairs are going to be where you a lot of negotiating. Ask the owner about repairs and write them down. Point out every little thing you see that is not perfect. On each item ask him what it would cost to repair it. Try to get him to tell you a range of prices and write down the highest
amount. Ask him if he's sure the repair can be done for that amount sometimes he'll increase the amount. Make sure to use the highest amount in the rest of negotiations. When you start adding up the repair amount this will help lower his value. Take a lot of notes concerning the repairs. The more you write about them the more it makes the owner aware of them.
Make sure you have a check list with every part of the property named so you don't miss anything. When taking notes, talk to yourself loud enough for him to overhear what you're saying about the repairs and cost. This will help reinforce that the repair cost may be higher than what he thought.
Now comes the time for another important part of the negotiation. You need to turn the conversation to his loan amount and how far behind in payments he is. Depending on where he is in pre-foreclosure period will determine how much reality you can bring to him. The way to do this, after finding out how much he is behind, is to mention how bad the late charges are on the late payments and how fast they add up. Find out how far the taxes are behind and how much the late fees on them are. You can sympathize with him but be sure he understands what kind of hole he's in.
At this point tell him you are ready to buy and need to know the lowest amount he can take for his house. No matter what price he gives you don't say a word, just look at him like you're waiting for him to say something more. A lot of the time he'll name a lower price as he won't be able to stand the silence. If he doesn't name a lower price then go ahead and offer him a lower price than the original one he named even if that price was a good one. You can always raise your offer but it's pretty hard to lower it.
A way I've found that works to keep the owner from getting mad when you make a lower offer is to say " I'm sure this won't work for you but I've only got x number of dollars to invest at this time. Would that even be close to us putting together a deal?" Now is when silence is golden. If he doesn't get mad at the low price and names one between yours and his original one then keep working with him.
If your offer does make him mad, hear him out and if it looks like you're not going to reach an agreement now make sure he has your phone number and leave. You have to wait for his call, don't call him back. This is hard to do but if he does call you can often put a deal together that looked dead.
When he calls ask why he waited so long to call back. Tell him you really wanted to buy his property but you've looked at a couple of others ones and now you're not sure about his. Give him a couple of reasons to let him know that you might not be able to buy his property but you'll take
another look just to be sure.
Go back over to see him as soon as you can. When you arrive tell him although you've spent most of your available funds on another property you may be able to make his work if he's definitely ready to sell. When he gives you a new price you should offer less again and see what happens. If he says he needs a certain amount to pay bills you might be able to pay some of them for him, especially ones that could be liens or turn into liens against the property. You also may be able to discount them which can figure into the price you can pay.
When you have reached the price you want to pay now is the time to try to add to the bottom line profit. If you offered him a lower price than what will work for you and he won't budge you can tell him you'll pay his price if he throws in something he owns. I had one where the owner was also trying to sell a nice boat. The value of the boat was about $2,000 above what he owed so I told him to throw in the boat and I'd give him his price. When I talked to the boat dealer I found out he was behind in payments so when I offered to pay off the boat for a discount he couldn't say OK fast enough. When the deal was complete I ended up with the boat for about half of what it was worth. This can work on anything that has some equity in it, especially if he owes money on it.
Remember when you are dealing with people who are in trouble financially be kind and don't try to take advantage. While you are trying to make money, you need to help them also. Try to make every deal a win-win situation and you'll probably end up with more money and you'll definitely feel better about yourself.
3. WHAT IS A SHORT SALE AND HOW DO I MAKE MONEY ON ONE?
HOW TO DO A SHORT SALE
When looking for foreclosures you’re going to run into a lot of properties where the amount owed is more than what the property is worth. Most investors don’t even look at these, but this is where some serious money can be made. Before you try to buy your first short sale I’d suggest you take a look at the short sale courses at www. foreclosuresandflippers.com or www.foreclosureinsights.com .
I usually get excited about a short sale when the property is in need of work. The reason for this is when a property is in good condition the lender knows they can list it if they take it back and have a reasonable chance of selling it. If it needs work you can generally convince the real estate agent the lender sends out to do the BPO (Broker Price Opinion) that it’s worse than what it really is and get a lower value from them which you can then use to negotiate a lower price with the lender.
For instance the property would be worth $400,000 if it was in good condition. It needs paint, floor coverings, landscaping and some miscellaneous repairs which you estimate you could get done for $15,000. When the real estate agent comes to inspect the property, be sure to meet them with some low comparable sales in the area and an estimate of repairs for an odd amount, say $24, 848. This makes it look like you got exact bids for everything that you’ll be pointing out to them that needs to be repaired.
If you do this right, you should be able to convince the agent that the property is worth in the area of $350,000. With that figure in mind you would offer the lender $300,000 explain the reason for the offer is that they have to take into consideration the selling fees, holding costs and the risk of vandalism, etc. You can also point out that values are still falling in California. If you can settle on a price of $315,000 and put the $15,000 in you would have about $70,000 as a potential profit. Remember you are also going to have holding costs while trying to find a buyer, so make sure there is plenty of room in the deal. If you’re buying it to live in then you can pay a little more than you would as an investment.
The way a short sale purchase works best is to be able to show the owner why it’s in his best interest to deed you the property if he doesn’t want to or can’t sell it and may be moving anyway (don’t let the owners stay in the property). Although an owner can’t receive any money from a short sale (you can usually find something of theirs to buy at a premium price to give them moving money if the deal warrants it), it is still in their best interest to not have the property go through foreclosure as it will hurt his credit even more than the short sale will.
Explain how much better for their credit if they do a short sale and how important a higher credit score will be. The way the credit thing is going, before long you’ll need a good credit score just check out a library book. When you have the property under contract you need to get the seller to write an authorization letter giving you permission to speak with the lender on their behalf.
Call the lender and find out where to send the letter and have them tell you what documentation they need to do a short sale. Some of them have their own documents that they want you to use and will fax or email them to you. When you call the lender you’ll most likely end up in the collections department.
Try not to waste too much time talking to them as they really can’t help you, instead insist on them putting you through to the Loss Mitigation department. If they don’t know what that is ask them to put you through to one of the following departments: work-out, foreclosures, short sale, loan modification or reinstatement. Hopefully one of these will ring a bell with them. Generally after you’ve sent them the authorization letter and you’ve been cleared to get information on the property they will want a signed sales agreement, a financial statement to show the borrowers can’t afford the property and a hardship letter to explain in personal terms why they can no longer afford the property.
Some banks may want some other documents, but these will likely be items the seller should have. After the lender gets this information they will assign it to a mitigator and he will contact you to start negotiations. It normally takes a couple of days for the lender to assign it and much of the time they have up to two weeks to contact you. I usually give them a three or four days, after I’ve confirmed that they received it, and then I phone every day until someone talks to me.
If you have checked any of the courses the gurus are teaching you’ll see some pretty outrageous claims of what the bank will discount their loan to. One thing to remember is that most of them are back East and prices are quite a bit lower there than they are here in California so the percentages tend to be skewed.
When you see claims of 40, 50 or even 75% discount take it with a grain of salt. Having done this for a while and talking to many loss mitigators I’ve come to the conclusion that you’re probably more likely to get discount of somewhere around 15-20% plus repairs and costs. Although it costs somewhere in the neighborhood of $30,000 to $50,000 for a bank to go through foreclosure some of them feel that it’s in their best interests to do it rather than discount too much. Be realistic when you talk to the mitigators. Get greedy and they’ll probably just blow you off.
The lender is going to require you as the buyer to have a signed contract of sale, loan approval letter and a estimated HUD-1 from escrow. If you haven’t opened escrow you might want to check on this course at www. easyHUD.com to be able to make a professional looking HUD-1 that will show the lender how much they will net and it will be a form that they’ll approve of. Once you’ve sent in the required information it’s time to start serious negotiations with the Loss Mitigation department. Be sure you build as much rapport as possible with the mitigator right from the beginning and hope you keep the same one all the way through.
Things tend to get messed up when a different mitigator is assigned to your file because they all have different ways of doing things. Try not to waste their time as right now they are extremely busy and they don’t have time or the patience to work with you when you don’t send all the paperwork they want. Don’t forget to point out how bad the real estate picture is here in California, how much it costs to do a foreclosure, how much the bank has to hold in reserve, how much is costs to sell the property (for instance the sales commission alone on a $400,000 sale is $20,000 to $24,000), etc. Don’t do this blatantly but try to work it into the conversation.
4. Build A Fortune With Real Estate Foreclosures And Short Sales.
Todays real estate market is mostly about foreclosures and short sale. This real estate foreclosure and short sale course reveals from beginning to end the correct methods to find and buy foreclosHow as well as how to short sale a property. To learn more about making your fortune look at the foreclosure and short sale course.
5. Build Massive Wealth With Foreclosures.
Because so many of the properties you'll be dealing with for the next few years you need to learn how to buy foreclosures. This step by step formula for buiding massive wealth with real estate foreclosures will teach you everything you need to know about foreclosure real estate investing.
For more information about foreclosures and other types of real estate visit our blog at http://healthy-and-wealthy-now.com/realestate
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