by Don Whie
There is a right way and a wrong way to buy a foreclosed home. You can be successful if you have three things: acces to cash, good credit and good health, zest, vitality, and a taste for the hunt.
Distressed homes are all around just now. Yes, you can make some real money in this market, even a killing if you’re good and lucky. Those are two separate adjectives and you have to be both.
It isn’t as simple as you may think, and the road to success is full of minefields so be prepared to become frustrated. You can’t do it just by checking the newspaper notices from time to time. If you choose to pay for some website privilege it may cost you and you may not be any farther ahead because they offer only minimal information in most cases. And the information they have has been gleaned from lender notices, county registers, and private individuals crying for help.
It’s a crying shame, but lenders post only minimal information on the properties they’ve taken back. If you go to a real estate professional they may shy away from you, unless they haven’t made a sale in a long while, which could be true. For an agent it takes as much time to process one of these foreclosures at cut-rate prices as the real thing. Remember, their percentage is fixed, perhaps 6%, and if the price has dropped to 25 cents on the dollar so has the incentive for a real estate agent. Many agents have no expertise in this field and they don’t want to be bothered.
So where does that leave you? You must be willing to do the sleuthing on your own to find the best deals. The best place to start is where you want to buy, maybe in your own neighborhood. By narrowing the field this way, we also take some of your work away. Also, by living in the area it makes it easier for you to talk to neighbors and friends about the property and to build a real hefty file on the houses there.
Here are some tips:
• We’ve already told you to focus on one neighborhood, and what’s better than where you live? The best foreclosures for you are in good neighborhoods like yours, where there are plenty of good homes around this one bad one. It will bring up your selling price on the home later when you decide to market it.
The optimum time to buy a home like this is before it goes into foreclosure. Ring some neighbor doorbells, find out if this owner is in trouble and create a scenario in your portfolio and in your mind of how you can be of help to him while helping yourself.
• Go on the Net. Do your basic research. In Orange County Florida, for example, you can enter the county name in the computer, along with TAX SEARCH, and come to that very home if you have the owner’s name. The computer screen will tell you the square footage, bedrooms and baths, and what the house was appraised for. That gives you some idea of its potential. Some lenders list the properties they’ve taken back, though information on these properties is sparse. (Here’s a good link to these lender sites) Remember: REO means real estate owners
• The local assessor’s office may provide other information, such as what the owner paid for the house and additional tax information. What we’re finding is that most of the foreclosures are of recent acquisitions by their owners. In other words, they owned a house, then they bought this one as an investment, not realizing that the Adjustable Rate Mortgage they got sucked into was a boomerang waiting to hit them in the face with progressively higher and higher monthly payments until they couldn’t bear it any longer.
• Many of these foreclosure victims were “upside down,” meaning the value of the home dropped to a value lower than the amount they owed the bank on the mortgage. If the owners are still in the home, the key is to quickly determine what the owner wants. Usually its his wallet is not fat enough to keep up two houses’ mortgages. Try to settle with this owner quickly. Or if a lender is trying to minimize losses on a foreclosed property which no longer is worth the unpaid loan amount, you might be able to negotiate a very good deal on financing by agreeing to pay a close-to-market price. Don’t give them too close to market, because it’s a known fact many banks are willing to take 25 cents on the dollar–anything, to move these homes.
• You so far have found what you want to buy, but you may lack real estate technical experience. You will want to affiliate at some point with an experienced agent. You’ve done all the heavy lifting to this point so it won’t be hard to find a successful one to work with. Some lenders refuse to deal with buyers direct. Test the waters, see what you can do with the lender before giving away 6 to 8 percent to an agent who will do bery little for you except to protect your rights. This is good advice if you are new to this. If not, maybe you can carry the ball all the way to the closing. Make sure it is a closing at a quality closing company, with all the proper papers signed, the I’s dotted and the paperwork legal.
NEVER, and I can’t emphasize this enough: NEVER do a little private contract with the debtor where you buy it on contract from him. That can lead to all kinds of pitfalls.
Like our neighbor who thought he was buying an expensive house from the owner on contract. He and his family moved in and were there a couple of years, dutifully making payments to this former owner–who should have been paying the bank. But the former owner suddenly disappears and it is found out later he paid nothing to the bank for two years–that’s sometimes how long it takes on the road to foreclosure–and the bank finally foreclosed on the home, evicting the little guy who thought he bought it on contract. That’s misfortune you don’t need–something that can be avoided if you play your cards right.
There are plenty of pitfalls. If you need an agent, get a good one who has had this kind of experience. You may want to also get a real estate attorney who can draw up all the paperwork and do the closing as well. Get as many heavyweight experts in your corner before you proceed, and don’t be afraid to ask for advice all along the way.
You can sell your house yourself, but we don’t advise it. Read how people are turning to Don and Carolyn’s new book about selling houses fast even in this housing recession–yet making money on the sale. You, too, can profit by reading this boffo new book…but you must read it before you begin to sell the home–even before you list the home, to get the most mileage out of the five secrets the White’s outline in the book SELLING FAST:We Sold Our House In One Day And You Can Too.
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