Real Estate Profits

When you locate a pre-foreclosure that looks like it would be a good 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.                                    photo credit: SharkeyinColo

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.

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