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How To Buy Foreclosed Real Estate Making Big Money Investing in Foreclosures Making big money investing in foreclosuresyou can earn up to an extra $100,000 this year in foreclosureswhy the time is nowthree biggest myths about investing in foreclosures the choices yours the big picture on investing in foreclosuresforeclosure definedwhat foreclosure deals looked like what you can offer a homeowner facing foreclosure the efficiency judgments the deaf truss vs. mortgage nonjudicial foreclosures judicial foreclosures best foreclosure stage to buy in study the rules 12 ways structure deals without cash for creditfour factors that may purchase option strategies work with foreclosurestraditional ways to buy foreclosures the foundational first foreclosure buying strategy the best kept secret in real estate buying subject to the deal on sale clause not a big problem negotiating a forbearance agreements you've bought it subject to now what three biggest questions about buying subject to short-term subject to rehabbing a smarter way to find a rehab wholesaling or flipping deals for quick cash profits short sales making big money on houses with little or no equity six steps to close a short sale leveraging the power of subject to what discounting debts why every investor can be a cash buyer several sources of funding for deals other than your local bank one final strategy to structure the deal chapter 4 two ways to find a motivated sellersmaking deal work fining a motivated Centerscript for qualifying sellers over the phone technique 1 I buy houses classified ads technique to I buy houses science technique three magnetic or science technique for larger I buy houses science technique by postcard campaign technique 6 sequenced letter campaign technique seven door hangers and door-to-door fliers technique 8 co-op mailing campaigns technique nine visiting sellers in default in person technique can real estate agents technique 11 networking with attorneys technique 12 send out your bir dogs technique 13 and career friends and family capacity to your way technique 14 by deals at wholesale from other investors technique 15 network with other professionals technique 16 trigger documents ships technique 17 research the notice of default list at the courthouse technique 18 starter foreclosure service business technique nine team go through the back door technique 20 establish relationships with lenders in the REO properties technique 20 to create your own the ugly or vacant house list tracking your marketing efforts chapter 5 the instant offer system five simple steps to yesthe big picture of the instant off versus themfive steps to get sellers in foreclosures to say yes step 1: connect with the seller step to call them set upfront agreements step 3 call them build the seller's motivation step for: talk about the money step 5 take the what is step how to avoid a 7 biggest negotiating mistakes most investors make 24 foreclosure pitfalls that can cost you bigpitfall No. 1 leading the seller stay in the House pitfall No. 2 renting the property back to the sellerpitfall No. 3 putting serious money in the deal before your seller vacate us pitfall No. for giving sellers all their money before the final walk-through pitfall No. 5 putting serious money in the deal before completing your due diligence pitfall No. 6 not accurately determining the real market value of the property pitfall No. 7 not checking the title carefully enough pitfall No. 8 Not mind title insurance if you put serious money in the deal pitfall number nine not running a credit check on the seller pitfall No. 10 seller declaring bankruptcy pitfall No. 11 only buying half a house pitfall No. 12 now getting the property professionally inspected pitfall No. 13 messing up your paperwork pitfall No. 14 now following your states foreclosure laws pitfall No. 15 following into the insurance track pitfall No. 16 seller pushing the loan to get called due pitfall No. 17 seller disappearing once you've bought the property pitfall No. 18 having liability even when you assign your contract pitfall No. 19 seller claiming interests duress pitfall No. 20 seller claiming misrepresentation pitfall No. 21 seller backing and the deal pitfall No. 22 investing in your name pitfall No. 23 not papering your trail pitfall No. 24 taking personal responsibility for seller situation house up your deal for quick cash profitsseven profit centers in your dealhow to flipper wholesale deals for instant cash flow step one block of the property under contract the secret clause allows you to fit your deal if you still wondering how you can seller house you don't own step to find a buyer for your deal the biggest secret is flipping a deal fast three little-known power and secrets building your in-house buyers list step 3 close with your buyer investing for long-term wealth buildupstrategy No. 1 rent out the propertystrategy No. 2 sell properties on a rent to own basis strategy No. 3 sell with owner financing using land contracts sell its owner financing step-by-step sample voicemail script for selling with owner financing science your most effective source of buyers fliers your ace in the whole setting up the realistic marketing timeline to more in profit centers in your owner financing deals Six Famous Top Investors Due to Sell Fast a powerful selling strategy rent to own intercarrier seven secrets to sell your properties fast putting it all into actionstep 1 test out three different lead sourcesstep to meet with resellers as fast as you can step 3 Diane and learn how to invest the right way step for establish three to five secure lead sources step 5 meet with two to four sellers a week every week step 6 start cultivating sources of funding step seven constantly learned and grow from your experiences tithing and seeding getting comfortable with wealth is really possible for you you can earn up to up to $100,000 this year in foreclosuresthree years ago Sierra students in arm mentorship program, went from being a highly paid executive of the dot-com boom to an out of work statistic of the.com bust. Whether you're in executive in a corporate world a professional with your own business, or blue collar worker with dirt under your nails, you can imagine how scary that reality was for Sarah. Nothing she had learned over the prior 15 years of corporate life and prepare for the harsh realities of being on her own.Sarah vowed that never again what she depend on some job or corporation for her income. she decided to start investing in real estate. A few months after she made this decision, Sarah came to one or workshops in San Diego. She said right down in front row and to page after page notes. Hungry to learn how to become successful investing in real estate, she came up and asked questions and every break. How do things turned out for Sarah? During her first 12 months of investing, she completed 10 deals
and earned more than $150,000 net profit. Today, she specializes
in buying three foreclosures and foreclosure properties in her hometown
and earnings a lot more money than when she first got started investing. All of our lives well-intentioned people have stated reason after
reason why we can't or should make money investing in foreclosures.
But what they told you was only half-true and fully misleading.
They passed on their beliefs without even understanding themselves
how costly buying into these myths could be for you. Keys to Buying Foreclosed and Bargain Homes (Barron's Business Keys) How to Pick Up Foreclosures Buying Real Estate Foreclosures Goldmining in Foreclosure Properties Gold mining in foreclosure properties1 year place in the distress property cycle2 where is the gold? 3 some commonly asked questions 4 the rules and the players 5 overall strategies and procedures 6 between two houses 7 stage one Colin before legal action begins 8 stage to Colin after legal action begins 9 negotiating with troubled owners 10 negotiating with lenders a lemon inspecting a property 12 closing the deal with troubled owners 13 stage 3: auction type 14 stage 4: REO and repos 15 selling the maximum profits 16 upgrading with major improvements 17 been a real estate investor the time of your life CHAPTER 1 Your Place in the Distress Property Cycle Techniques only work when you do. —Carlos Royal Goldmining in Foreclosure Properties deals with homes, condos, and smaller rental units that have fallen into the “distress” category, meaning that the owners are in a hurry to sell. These people may be prompted to sell by personal problems or .nancial problems, but in either case the result is the same. They need to get out with some .nancial arrangement tailored to their needs and with at least a shred of dignity intact. As a private party, you are better able to help the troubled owners (and yourself ) than the experts are. You know the consumers’ problems. You can take the time and make the e.ort to work on one deal at a time, whether it’s for your own home or for an investment. If you’re really motivated, you might even undertake “goldmining” as a small part-time business. It could bring you between $40,000 and $100,000 a year, depending on the energy you expend. A Unique Opportunity Human nature being what it is, there is always someone who wants to get rid of a property because of a personal situation—a divorce, a falling-out with partners, a job transfer. By staying alert for cases like these, specialists in distress property should always be able to .nd deals. Case Study 1.1 is an example of such a deal. But the time has never been better for aspiring real estate investors. Today the real estate industry is saturated with over.- nanced properties. The economy is threatened with slowdowns due to overseas problems which could create havoc in home building 1 GOLDMINING IN FORECLOSURE PROPERTIES 2 Case Study 1.1 Mr. and Mrs. Saybrook were the .rst buyers in a new subdivision (in the early 1950s). Because sales were slow, they were able to purchase their home and receive a building lot free. But after 10 years of an unhappy marriage, they had agreed to separate. I was living close by at the time and noticed their For Sale by Owner sign. After a few visits, I learned the following: Market value of home $60,000 First loan 23,400 Other liens 0 Net equity $36,600 We had no way to determine the value of the extra lot, so we included it as part of the house package. Property was plentiful at that time. Because the Saybrooks’ parents had loaned them the money to purchase their home (without security), the Saybrooks felt obliged to repay the loan only if they received a large cash payment. I asked if they would take $1,000 cash apiece as a down payment and let me pay the balance over twenty years at 5 percent interest, with half going directly to each of them. After deducting the $2,000 down payment from $36,600, we had a balance of $34,600. At 5 percent interest, amortized over twenty years, the monthly payment would be $228.34, or $114.17 per month each. This deal seemed custom-made for them, so we agreed to an option period of about sixty days. I knew I could interest a local builder in buying the adjacent lot if the terms were right. He was always interested in “no down” deals. I o.ered the lot to him for $10,300 with no money down but with monthly payments of $229.12 (based on a .ve-year term at 12 percent interest). This amount worked in well with his plans (most of the purchase price was deductible interest charges), so he readily agreed. He knew that in .ve years a lot with sewer and water in an established neighborhood could be worth many times the price he was paying. When we concluded the deal, I had solved the troubled owners’ problem and acquired a beautiful rental property with a small but growing cash .ow for only $2,000 down. and construction. But in chaos there is opportunity, and the real estate industry is no exception. In current conditions, people with skill, capital, and vision can make great pro.ts. The existence of these opportunities is no secret. There is a shortage of capable real estate entrepreneurs, however, so this .eld is ripe for the taking. Because of the in.ated real estate prices over the past several years, buyers have had to take out larger loans than ever before, with extremely large monthly payments. The lenders are all too willing to help. In fact, lenders’ actions seem calculated to overload borrowers. If the lenders repossess and sell a property, they could increase their pro.ts dramatically, unless the loan is greater than the value of the property. But the borrowers will lose everything —home, equity, and credit. In many cases, even a small .nancial reversal can get the borrowers in trouble. A tremendous .ood of distress properties seems all but inevitable. In 2002 the rate of mortgage foreclosures reached the highest rate recorded in 30 years. In one three-month period, the proportion of loans on which foreclosures were started reached four per 1,000. Mortgages in the foreclosure process at any one time rose to more than 12 per thousand. The trend has stirred concern among industry leaders, fearing that the industry has been weakened by over-.nancing of homes. Now is a very good time for knowledgeable investors to step in and enrich themselves while helping troubled owners and lenders resolve their problems. Why? Because properties could soon be in more trouble than ever before. More default notices are .led today than at any time in the past ten years. More borrowers and owners of property cannot make payments on their .rst, second, or even third or fourth loans. The current estimate of delinquencies is well over 3 million per year. The estimated number of foreclosure actions started in court is about 400,000 per year. What’s happening to the other 2.6 million delinquencies? Some are resolved by the owners before foreclosure takes place. But lots of deals are being made, too. If you want to buy a home to live in or to invest in, you should try dealing in distress property. Whether you are male or female, single, married, or living with someone, senior citizen or youngster, this is a great opportunity. With the forms and procedures provided in this book, you can help yourself and save the credit rating of the troubled owners. The Distress Property Cycle The life cycle in distress properties has four distinct stages: • Stage I: Before Legal Action Begins. This is when the owners .rst stop making payments on the loan (or loans). Financial setbacks, personal changes, and family pressures may all play a role. 3 YOUR PLACE IN THE DISTRESS PROPERTY CYCLE • Stage II: After Legal Notices Are Filed. At this point the foreclosure clock starts to tick. Only a limited number of days are left for the owners to pay up, sell, or make other deals with creditors. • Stage III: Auction Time. This is how the court legally sells the property to satisfy the unpaid loans. • Stage IV: REOs and Repos. When no one bids the amount owed, the property reverts back to the lender. It becomes an REO (real estate owned) property. When it reaches this stage, you must deal directly with the lender (who is now the owner). Most specialists in distress property work in all four of these stages eventually. As a beginner, you’ll probably want to choose one. The Distress Property Cycle chart in Figure 1.1 can help you decide. Then you can go on to consider a number of other important areas. Analyze the Deal’s Advantages and Disadvantages Each prospective deal has advantages and disadvantages. You have to determine, in light of your own situation, what’s most important for you. Plenty of deals are available. You just have to pick the one you’ll be most comfortable with. Start by analyzing your reasons for seeking title to a distress property. Are you after income from property management? Appreciation of capital? A tax shelter? More cash .ow? Pro.t from resale of the property? A home of your own? Once you’ve identi.ed your motives, you can focus on the distress property itself. Each investor has a di.erent way of analyzing values, but several key factors will have to be addressed: • The total amount of investment necessary • When the funds will have to be invested • How much of the return will be in “hard” dollars and how much in “soft” dollars • When the investment dollars will be returned Obviously, before you can make a pro.t dealing in distress properties, you have to understand the details of any transaction. You are concerned with the same basic questions as the original mortgagee of that property. In conjunction with your own economic review, you will probably ask the lending institutions certain threshold questions: Are additional funds available from the original lender? Will the GOLDMINING IN FORECLOSURE PROPERTIES 4 lender indemnify you, as the new buyer, against any unforeseen claims against the property? Avoid the Excessive Cost of Banks, Lawyers, and Realtors This book does not and cannot give legal or professional advice. It does show how, with the right research and information, you can avoid all excessive professional costs associated with taking over existing property. For the most part, you just have to be aware of the applicable local, county, and state laws and be alert to some of the economic fundamentals. Although the procedures outlined here will not work in every county or every state, they provide enough basic information so you can consummate these transac- 5 YOUR PLACE IN THE DISTRESS PROPERTY CYCLE Figure 1.1 Distress Property Cycle tions at minimum cost. You need only think a little and perhaps consult occasionally with an attorney or local professional. Avoid Leverage Tricks Leverage is advocated by most books with titles like “How to Make a Million Dollars in Thirty Days.” Leverage is .ne in a hypothetical example on paper. In real life, however, leverage works both ways. Prime rates go up and down (from 4.35 to 15.75 percent in the past 20 years or so). The banks and other lenders continually pressure the consumer to pay the piper. When you use other people’s money (“OPM,” as it’s called in most get-rich-quick books on leverage), you invite total ruin. A better, safer way to operate is as an individual investor, handling only what you can manage. When you use your own money (meaning yours, your family’s, or your business’s), you eliminate a variable factor that could upset your planning. If all the money is yours, nobody can call your loan and ask for the money back. It is never a good idea to rely on other people’s money, except when buying a property subject to an existing mortgage. Unnecessary risks are foolish. To accomplish the ends presented in this book, you do not have to use leverage in the speculative sense, nor do you have to borrow other people’s money. Observe the Laws That Apply in Your State Although the ideas included in this book have been shown to work in most areas of the country, you must carefully check your local laws. It is impossible in a book of this kind to interpret the real estate laws of all .fty states and set down one group of rules that will work for all of them. For instance, some states have mortgages; others have deeds of trust. Even if the terms are essentially interchangeable, you would be well advised to consult a trusted attorney or accountant for the answer to any speci.c question concerning a speci.c area. Critical Success Factor The basic economic principle behind this program is the law of supply and demand. But other factors that contribute to its success are under your control: • Intimate knowledge of a particular location • Ability to maintain the property you acquire in such a manner as to increase its value • Sincere concern for the welfare of troubled owners GOLDMINING IN FORECLOSURE PROPERTIES 6 • Willingness to work outside the regular nine-to-.ve hours of most professionals • Willingness to deal directly with the sellers and the buyers • Knowledge of how to buy property subject to existing mortgages and thereby avoid red tape Remember, you probably know more about the territory than the experts do, and you can react more quickly. Your unique position as a specialist and your interest in helping owners who are in trouble will be your greatest advantages. Where Do You Fit In? The number of distress properties available changes when business conditions change. During times of full employment and low interest rates, there probably will be fewer. During bad times, when unemployment and high interest rates present a problem, the number of distress properties increases. But this issue is really beside the point. What’s important is where you’ll operate. What will your area be? How many housing units are in this area? How many properties do you want to buy per year? What are your personal goals? One of my friends is content with one deal per year. His “farm” area consists of about three tracts right around where he lives. He gets all the information he needs from a small newspaper that comes out twice a week. It lists divorces, deaths, and trustee sales. He is very selective. He lists the suspect properties. He develops prospects and easily gets his one good deal per year. I know another fellow who operates in three large counties in California—Orange County, Riverside County, and San Bernardino County. He and his two partners go for one deal a week. They haven’t reached that level yet, but they have been averaging about two to three deals per month. Once you have full knowledge of how the process operates, you have almost unlimited opportunities. The important thing is to get the knowledge and then develop a system for yourself. Pick a market large enough to accommodate your personal goals. Of course, another limiting factor is the amount of cash you have. I always recommend starting small. If you can get one good deal a year, you can expand to two deals or more as your skills expand. Each stage of the distress property cycle has its own opportunities and its own problems. But they are all solvable, practical, bread-and-butter problems. There is nothing esoteric about them (like having to put a man on the moon). As long as you know where to go and who to ask for answers to these problems, you will be alright. 7 YOUR PLACE IN THE DISTRESS PROPERTY CYCLE The Value of a Positive Mental Attitude As you read this book and make preparations to go into the .eld, bear in mind that you are doing several people a favor. Your acquisition of distress property will stabilize or improve the credit rating of the struggling owners. You will help the people in the neighborhood by turning a property that is starting to run down into a property that has some dignity and potential value. Finally, you will help yourself (if you move into that home) or the people who lease or buy the place by providing a decent residence at a reasonable price. Maintain an “I know what I am doing and I am doing something good” attitude. You need to approach every situation with a positive manner and a desire to make good things happen. The sellers need to feel that their problems are receiving sympathetic consideration and that you are o.ering personal service as well as service to the neighborhood. This whole endeavor should be a source of pride and con.dence for you and everyone else involved. A positive attitude is your most valuable resource. I remember one particular deal that started out so poorly I felt like quitting real estate over it. It was only my positive attitude that .nally caused the bad deal to yield a big pro.t. A real estate agent called to say his broker wanted to sell an investment condo she owned. The broker needed cash for another investment. The condo was a 4 bedroom, 2.5 bath, two-story townhouse in very bad condition but in a good location. After days of meeting with the agent, the broker, and the tenant (who turned out to be the real owner), I realized the deal was too confusing. The original buyer had sold the unit to the broker, who sold the unit to the present owner under a long-term contract of sale, very much like a lease with an option to buy. The buyer was making lease-type payments to the broker. The broker had obtained additional loans on the unit, as had the buyer. By the time I decided to back out, the broker had committed herself to another deal using the money she was expecting to receive from me. In fact, all three parties had planned a chain of purchases. When I told them I wanted out, their cries of anguish could be heard halfway across the state. This was a classic case of misunderstanding upon misrepresentation upon mistake. No one had really lied or intended to defraud. The problem was just that no one had presented all the facts in a normal way. In response to the reaction, I guess, I stepped back and reviewed all the facts. Actually, the numbers did work. A good pro.t was possible on a sale one to two years down the road. All I had to do was be sure that all the liens and encumbrances were included GOLDMINING IN FORECLOSURE PROPERTIES 8 and that I had safeguards. My positive attitude prevailed. I met with all three parties at a lawyer’s o.ce, and a few hours later we had a deal. Everyone, except me, was in a hurry to make the deal. So I got all the safeguards I wanted and a few extra price concessions besides. I agreed to re.nance the unit, replacing all .nancing with a new .rst loan. The agent, the broker, and the owner all got their money, and I got a choice property that eventually earned a neat pro.t—because I kept a can-do, positive attitude. 9 YOUR PLACE IN THE DISTRESS PROPERTY CYCLE
From and but government reviewsWiedemer, a lawyer and a real estate agent, quickly explains net buying a for close home is not foolproof just like some people try to make it seemed like. Intel's potential buyers that prices are directly correlated to the economic trends of the local community. He distinguishes the noble hazards from the problems that are difficult to predict and tells you can handle them. An in-depth description of buying real estate from the government concludes is very good book. Recommended for wide audience. good introduction to the foreclosure process is a pretty good boat free to start your own foreclosure business is written by a lawyer so I recommended.
investing in real estatewhy income properties remain your best routes to a prosperous futurea dependable and growing flow of incomeproperty vs. stocks what about bonds? don't fall for the annuity sales pitches Our ranks collections dependable ? Why Raines will continue to increase from baby bust to echo boom new construction can't keep pace more good news for property appreciation but first, the reckoning the relevance to property appreciation the interest rate kicker reason, not fates stocks can't deliver you can still win with income properties (for now) financing: and borrow smart builder willthe birth of nothing downshould you buy with little or nothing down? What's wrong with nothing down? Leverage: pros and cons what are your risk return objectives maximizer leverage with owner occupancy financing owner occupied buying strategies homeowners, too, can use this method why one year? Working find high LTV owner occupied mortgages in what are the loan limits? I leverage for investor owned financing I leverage vs. low (or note) down payment creative finance revisited are higher leverage creative finance deals really possible? What underwriting standards to lenders apply? Collateral (property characteristics) amounts and source of down payment and reserves capacity (monthly income) credit history (credibility) personal characteristics compensating factors automated underwriting the appraisal: how to discover great propertiesmake money when you buy, not just 20 sellwhat is market value? Sale price doesn't necessarily equal market value lenders only loan against market value the three approaches to value property description subject property identification neighborhood site (loss) characteristics improvements the cost approach calculated cost to build new subtract depreciation blood value estimate market value the comparable sales approach select comparable properties adjust for differences explaining the adjustments the income approach income capitalization net operating income estimating capitalization rates comparing Rates the paradox of risk and appreciation potential always compare relative prices valuation: final words other limiting conditions valuation vs. investment analysis maximize cash flows in returnswill property yield good cash flowsarrange alternative terms of financing decrease or increase your down payment by a bargain price should you ever overpay for property the debt coverage ratio numbers change principles remain will the property yield above average appreciation? |