Cashing out of Preforeclosures -
Exit Strategies for Maximum Profit
Part 4
by Richard Odessey
SUMMARY:
As a real estate investor, preforeclosures are your opportunity to buy
low and sell high. What’s the secret to finding, buying, and selling
notes? Locating and securing profitable properties are a good first
step. Learning the best marketing strategies and creating your exit
plan and can put you on the quick path to success in your real estate
training. This real estate investing article takes you through the in’s
and out’s of preforeclosures and gives you a quick education in
the fine art of building equity (and profit!) in real estate.
ARTICLE:
One of the quickest ways to real estate profits is through preforeclosures.
What is a preforeclosure, exactly? A homeowner is in preforeclosure
when the bank gives notice of default to the time the house sells at
auction. Typically, this is around the time of 90 days into default,
depending on state law.
The key to preforeclosure investing is equity – the difference
between what a house will sell for and what is owed on the house. And
when the homeowner can afford to pay the mortgage, he may be motivated
to sell the house just to be rid of the debt. In this case, the preforeclosure
situation may allow you to buy a house for less than fair market value,
creating immediate equity for yourself.
Preforeclosures are your opportunity to buy low and sell high, maximizing
your profit quickly. How can you cash in on preforeclosures and exit
with the maximum profit?
Here’s how to do it.
Step 1. Find and Secure the Preforeclosure
Marketing for pre-foreclosures is a huge topic, that I can't cover
here. Suffice it to say, we find signs, and mailings very effective.
Once you’ve located a property, you’ll need to do the following
to screen them and prequalify your homeowners:
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Meet with the homeowner at their property
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Once you establish that you are there to help the homeowners, you
can make a reasonable offer that will that will help you achieve
the profit you’re looking for.
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Find out all you can about the physical and financial details
of the property. (Are there liens? Loan balances? Major repairs
needed?)
-
Gather correspondence from the lender(s) that will fill in the
details the owners may not be fully aware of or may not full understand.
-
Have them sign the documents that place you complete control of
the house.* Make sure that you know who ALL
the owners are, and that are serious about selling before you start
negotiating a deal.
* Note: Do this quickly once you have decided you are interested
in the property as a solid real estate investment. This will help
you turn around your equity quickly!
Step 2: Determine Your Exit Strategy
Are you going to sell the property for cash or flip the contract to
another investor for a fee. Are you going to owner finance, lease option,
or rent the property and hold for long term appreciation.
This will depend on your long term goals, and the costs, cashflows
and risks involved. If you are inexperienced at calculating these issues,
check out the Deal Evaluation Tool™.
Step 3: Begin Your Pre-Sale Marketing
One of the most important steps in securing your preforeclosure is
to begin marketing as soon as you have your paperwork in order. It’s
time to cash in on your equity.
Here’s how to get started:
Stake your claim – literally.
You’re going to need a heavy supply of signs. Once your paperwork
is in order, take a picture of the front of the property. You’ll
want to keep some “For Sale by Owner” signs in the back
of your car and have them ready once you have finished your meeting
with the owner. You may want to put out a “Rent to Own,”
sign as well. Play real estate agent – put signs around the neighborhood
with arrows leading to the property for sale.
Place your ads -- begin prospecting.
Place ads similar to the signs in local newspapers. Expect a good influx
of phone calls. When the phone rings, find out if the prospective buyer
is an investor or a prospective occupant. Collect the caller’s
email address, phone number, and fax number.
You’ll begin your own list of investors this way, and you can
notify them of properties you’re selling in the future as well.
Real estate agents will also call in based on your newspaper ads.
Step 3: Screen your buyers – and make the sale.
Be carefully when you screen potential buyers for your preforeclosure.
Let them know that they’ll need to be flexible, patient, and,
of course, financially qualified! Make certain they know the home is
being sold as-is condition. Once the paperwork has been approved, they'll
have to close quickly, usually within 30 days.
If you haven’t received an offer that meets your standards,
it’s time to move forward with the auction.
Many preforeclosures reenter the market through auctions. You can hold
the auction yourself or use a professional company to auction the property
for you. It’s best when starting out to get the advice of two
different auction companies. They’ll be happy to give you advice
on whether the property would be a good property to auction off or not,
based on the asking price.
The main advantage of professional auctions is the fact that they will
do all of the marketing and auction announcements. You can let them
handle the auction details, including screening of the buyers. If you
don’t get the reserve price you’re seeking, you simply pay
a fee to them to help cover their cost.
If your property doesn’t sell on the first try, you can retry
the auction again at a later time while you work on unloading other
properties.
Just remember to keep your prospect list growing as you advertise other
properties, and soon enough, you’ll have a healthy list of prospects
vying for your investments. Once you’ve sold enough preforeclosures,
investors will begin to contact you based on past sales and word of
mouth. All of your hard work can help you increase your investments
and quickly cash in on your newfound wealth – equity!