Knowing What You Want and What You Don't Want in Bargain Properties

Home foreclosures and fixer-uppers have long been a focus of savvy real estate investors looking to quickly make big profits. Of course, if the target property doesn't meet certain criteria, an investor can lose their shirt almost as fast as a rock star on a tour bus.

A cautious and methodical approach is best for rewarding and risk-averse decision making. Keeping that mindset, here are some critical area's that must be considered when looking for real estate bargains for investing purposes.

They are not all equally important. But they must all be considered in their entirety. The property should firmly meet at least one of the criteria, and should have no unjustifiable issues in any one area.

Following these principles is essential for achieving a higher return on your investment and lessening your risk.

KNOW WHY ON PRICE

Most investors focus on price first and foremost.

They search for properties they think are selling for below apparent market value. It seems easy enough but there are several things to watch out for.

First off, never buy for less than market price until you know exactly why the seller was willing to cut the price. What was their motivation. Are they relocating or in financial duress?

If not, there may be problems with the property that require costly, time-consuming repairs. Structural problems such as a compromised foundation, or outdated plumbing and wiring could be deal killers.

CONSIDER HOLDING COSTS

A usually unforeseen profit drainer is underestimating the liquidation costs of holding and selling the property. This is not surprising when one considers all the cost components, including commission payments to real estate agents, closing costs, mortgage payments, taxes, plus repair and maintenance costs.

An faulty determination of true market value is another obstacle to the successful deal. Market value is essentially a subjective exercise where the true value is not known until someone buys the property.

It's essential to analyze similar properties in the area, keeping in mind that prices are set at the margins and may reflect the extremes of a particular housing market environment.

TAKE ADVANTAGE OF TERMS AND CONDITIONS

Investors often focus obsessively on price and location and discount other profit leveraging tools like the terms of the financing. This is especially advantageous if the property is intended an income producing rental.

In fact, used wisely, an investor can pay full price and use this positioning to negotiate lower interest rates or a smaller down payment. Over time, the rental cash flow will be in the black because of the generous terms given, combined with gradual rent increases and price appreciation.

KNOW THE LOCAL MARKET

Experienced real estate investors often rely on the fact they know more about the market than the seller does.

Rental market bargains come about because you know more about the market than the seller.

Consider the absentee owner of a rental property. They might be primarily concerned with vacancy rates, so they keep prices low instead of upgrading the property. In contrast, your research shows that particular upgrades like air-conditioning, second bathrooms, or enhanced security allow for both lower vacancies and higher rental rates.

LOCATION IS RELATIVE

Other than price, location is usually seen as the most critical component of finding a good deal. In reality, this matters much more in terms of finding a long-term residence than it does for a quick sale. It's more critical to focus on the potential profit margins than the area it's located in. If the ugly home by the dump is more profitable than the fashionable condo downtown, then it's a better deal, aesthetics aside.

FIXER UPPERS AND FORECLOSURES

A familiar area ripe for investment picking is distressed properties or fixer-uppers. Of course these are the houses that need repairs to some degree. And the investors job is to discount the costs of these repairs enough so that the profit is still suitable.

With small repairs such as painting, minor landscape, and basic flooring, profits may be available but not really worth the risk. More significant profits are found with extremely distressed properties. Those slipping down the hillside and selling for a quarter or less of normal area values. Or the plumbing is corroded, the roof needs replacing, and the interior needs to be gutted and remodeled, but the seller is asking 50% of the market value and you can repair it for much less.

GET IN A ZONE WITH ZONING

Zoning provides an opportunity to put the property to a higher or better use and is an area many investors ignore. Higher and better use means that the owner is getting the most out of the land. For example, if a lot is zoned for three units but contains a single lot, then it is not getting its highest and best use. Or if a lot is zoned commercial, yet there's a three unit residential building sitting on it, it is not getting its best and highest use, like a business or a store.

These are often bargains because the price is based on current utilization. So the single unit residential is priced low while the double unit duplex could be sold higher or rented out. Harder to find as developers stay more aware of zoning allowances these days.

Watch out for "midnight conversions" where owners, aware of the zoning ordinance, have made changes without the oversight of the local building authority. Garages being converted to second units on a duplex lot are common examples.

Zoning maps can be found at the local planning department. The biggest thing to watch out for with zoning bargains is properties with multiple zoning that is not reflected on the map.

Even if its not your core strategy, the zoning should be looked at just to avoid negative consequences. Something to beware of is a future zoning change from residential to commercial which might affect an income producing rental property.

BEWARE OF SQUATTERS

A common instance of buying bargain properties at foreclosure is handling a former owner who still resides on the property. Not facing reality or citing mortgage fraud, they refuse to move out.

You can begin action to get the individual evicted, but if they battle it in court the judge may not dismiss the case and now you have a potentially lengthy court battle on your hands. Costs totaling in the many thousands and time measured in multiple months could be the end result of the purchase.

In any other type of purchase, always stipulate the conditions of occupancy, such as the house must be empty, before closing the deal.

In closing, these are some important areas you should use as a framework when searching for bargain properties. It serves to remind us that there's a bit more more to it than simply price and location.


Stephan Iscoe
Publisher,
MoneyMakersNews.com

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Learn the Insider Secrets of Buying Bank Foreclosure Properties

Top Five Tips for Buying a Foreclosure Property Below Market Value

Contributed by: Jim Saccacio, RealtyTrac Chief Executive Officer

If you feel like the escalating costs of real estate have priced you out of the market, think again. It may be time to investigate the vast opportunities available in the foreclosures market.

For people willing to do a bit of homework, the foreclosure market offers some of the best opportunities available in real estate today. Experts point toward significant growth in available foreclosure properties, so there’s never been a better time to line up your resources and educate yourself about this previously hidden market. It’s not unusual to save from 10 to 30 percent of the market value on a foreclosure property, and certain properties offer savings of 50 percent or more! There really are bargains out there. You just have to know where to look.

Web-based services such as RealtyTrac give consumers access to foreclosure and pre-foreclosure information that was previously available only to professional real estate brokers and investors. Today, homebuyers can use these services to identify and research potential home purchases, as well as to find the tools and professional resources they need to help them close the deal. RealtyTrac, which provides all the foreclosure data for both MSN House and Home and Yahoo! Real Estate, has already compiled a list of over 550,000 foreclosure properties across the country.

The keys to a successful foreclosure property purchase are diligence and patience, along with taking an educated approach to investing in this market. RealtyTrac CEO Jim Saccacio offers five tips to help you close a deal on a foreclosure property:

1. Learn about the different types of properties and the foreclosure process.
Not all foreclosures are the same! You need to educate yourself on the difference between the three basic types of properties, including notice-of-default (NOD), notice of trustee sale (NTS), and real-estate-owned REO, as well as the positive and negative aspects of buying at each stage of the foreclosure cycle.

As a rule of thumb, the best savings can be made at the pre-foreclosure stage, where home owners can avoid a foreclosure and lenders can save the time and cost involved in going through the process. Another critical point in the process is immediately prior to the auction date, when all parties might be most open to a last-minute solution.

2. Secure financing early
It’s important for a buyer to be pre-qualified before engaging in discussions with a seller. This ensures that the buyer is in a financial position to purchase the property, and is in the strongest possible position to negotiate.

3. Engage a real estate agent as a “buyer’s representative”
There’s a distinct difference between a buyer’s and a seller’s representative. Buyer’s representatives have the home buyer’s interests at heart, and are charged with finding the right property and negotiating the best price for their clients. Picking the right real estate agent will make your life much easier. Ideally, select an agent who specializes in the foreclosures market and has specific experience in REO properties.

4. Do your homework
Purchasing foreclosure properties is somewhat more risky than buying traditional real estate properties. But, with that risk comes reward in the form of much higher potential savings. With the right examination and due diligence, buyers can significantly reduce the risks. As with any purchase, timing is everything! But, it makes sense to give any property under consideration a thorough examination, including determining its condition and value, finding out the amount in default and the remaining loan balance, and running a legal investing report to make sure the property is free of any financial liabilities. Of course, it never hurts to foster a positive relationship with the seller!

5. Make a realistic offer
If you want to be taken seriously as a buyer, you must be realistic when preparing an offer. Lenders aren’t likely to give properties away, particularly in a real estate market where prices continue to rise. Additionally, homeowners in financial distress may be difficult to deal with, particularly early in the foreclosure process. An educated buyer—one who knows how much is owed on the property and what its market value is—can usually come up with a realistic offer; one that offers significant savings, while meeting the requirements of the lender.



Stephan Iscoe
Publisher,
MoneyMakersNews.com

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Learn the Insider Secrets of Buying Bank Foreclosure Properties

Discover Four Simple (But Not Easy) Steps To Real Estate Investing Success

Real estate investing is always good and sometimes it's red hot. When it's hot dozens of real estate seminars begin rolling across the country and thousands of people spend thousands of dollars for investing education.

It's startling to learn that of all those thousands of eager folks who attend these seminars only about 5% buy even one investment house. Why? The real estate gurus sell the "sizzle" and make profiting from real estate sound easy. The truth is that it's simple, but not easy.

Here's a quick plan that will enable anyone to begin building financial independence.

There are basically four steps to investing in single family homes:

1. Buy homes below full market value. Yes, people really do sell homes for less than the home's full value. The key is to understand that most home owners will only consider a purchase offer that is all cash and within 5% to 10% of their asking price.

The successful investor learns to find financially distressed home owners who have no choice but to sell for less than market value. They have lost their job or been suddenly transferred; they are divorcing; they been living beyond their income; the family has been overwhelmed with medical bills and, not uncommonly these days, their money has gone to support a drug habit.

Those are examples of motivated sellers. They have to sell and they will accept something other than a conventional, all cash offer.

2. How do you find motivated sellers? You work at it! Like any business it is important to develop a little marketing plan. One that is simple, yet very effective, is the one that was proven 75 years ago by the Fuller Brush company; door to door sales.

You are selling your skill as a home buyer to people who must sell. Your are there when they need you and you have the skill to help them solve at least part of their problem. With door to door prospecting you will learn more and buy more homes quicker than any other method. However, most people just won't walk door to door for three or four hours per week. OK, there are other ways.

You can watch public notices for the announcement of foreclosure sales. Meeting with a home owner right after they've received a notice that they are about to lose their home allows you to deal with a very motivated seller. Other public notices that provide buying opportunities include probate, divorce and bankruptcy. You can follow the Homes For Sale listings in your local newspaper or Internet site.

You can telephone the names found in these notices or, and this is the least time consuming, send a postcard expressing your interest in buying their property. It will produce buying opportunities, just not as many as personal contact.

3. After you've found a motivated seller you must understand how to frame offers that provide benefits for both you and for the home owner. A good real estate investor quickly learns that this is not a business of stealing property, but of solving problems in a way that benefits the seller.

The home owner is in a tight spot of some kind and you can save them from public embarrassment and, in most cases, give them at least a little cash to get a new start.

No investor can afford to leave cash in every deal. No one but Bill Gates has that much available money. You must use creative techniques like, leases, option and taking over mortgage payments. Little or no cash is needed for those deals. You can find plenty of reasonable priced educational material on those subjects in book stores or on EBay. The same education that seminars sell for thousands of dollars.

4. You make your profit when you buy! Never make a purchase until you've carefully determined exactly how you will get to your profit. If you hold it as a long term investment will the monthly rental income more than cover the monthly mortgage payment? Will you sell the deal to another investor for fast cash? Will you do some fix-up and sell the property for full value? Will you quickly trade it for a more desirable property? Have a plan before you buy.

There you have four steps that even a part-time investor can execute in three to four hours per week. What's the missing ingredient? Your determination and perseverance. If you will unfailingly follow the plan for a few months you will be well on your way to financial independence.

Stephan Iscoe
Publisher,
MoneyMakersNews.com

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Learn the Insider Secrets of Buying Bank Foreclosure Properties

Real Estate Investing in Bank Foreclosures

Loan foreclosures on real estate property provide a multitude of opportunities and challenges to a real estate investor. When a homeowner faces default on their loan and the possibility of a foreclosure by the loan holder, an investor has an opportunity to help the homeowner out of their problem and to make a profit at the same time.

No foreclosure situations proceed identically, but let's talk about some of the typical problems, steps, and resolutions. Large books have been written that cover the wide range of problems and solutions, but for the sake of this short article everything will be kept simple.

Homeowners miss loan payments for a variety of reasons, and when a homeowner has been delinquent on their payment for a number of months the loan holder, most commonly a bank, will issue a Notice of Default. The Notice tells the homeowner how much they owe in missed payments plus how much they owe in attorney fees and other penalties. The Notice also gives the homeowner a time period to be able to pay all that is owed and bring the loan back to good standing. If the homeowner can't pay all that is owed, then the bank has the right to insist that the homeowner vacate the property and the bank can then put the property up for sale or auction.

During this period of time between the Notice and the foreclosure sale, often called the pre-foreclosure period, the homeowner has the option to sell the property and to use the proceeds to pay off the arrearage that is owed. This pre-foreclosure period is also a time when a resourceful real estate investor has the best opportunity to help the homeowner with their problem. However, the homeowner who is in default and the investor have to find each other.

Since the Notice of Default is a recorded document and is made public, the investor can often view the Notice shortly after it is recorded. In most states and counties the Recorder's office makes the Notice public by posting it at the local courthouse or by posting it on their internet website.

The investor will generally find the Notice on the Internet and then contact the homeowner. Through a combination of letters, post cards, phone calls, and home visits the investor introduces himself or herself to the homeowner and suggests some courses of action.

Often the investor can take over the property and the responsibility for the loan by offering a reduced sales price or by taking over the loan altogether. This allows the homeowner to leave the property and the problems behind while the investor deals with them. The advantage to the homeowner is that they can avoid having a property foreclosure on their record, which would damage their credit score and their chances to purchase property in the future. In exchange the homeowner will generally willingly give up a large part, even all, of the equity that they had in the property.

Now the investor has an opportunity to make a profit if sufficient equity has been left in the property for him to make arrangements. For example, the investor may be able to pay off the arrearage, fix up the property, and sell it for a profit. That takes a fair amount of time and resources. The investor could also pass the deal along to an investor who specializes in fixing up properties and take a small but quick profit. Or the investor could sell the property at an attractive discount before the property goes to the foreclosure sale and make a profit without putting much of his own money into the transaction.

If there is not sufficient equity in the property for the above solutions to work, then the investor could negotiate with the bank to reduce the outstanding loan balance in exchange for a quick sale. That would save the bank from having to foreclose on the property and having the property become part of the bank's non-producing inventory for an uncomfortable period of time. This solution gives the investor the necessary equity to be able to make a profit.

There are numerous other scenarios, complications, and solutions, but this article has highlighted several of the more typical and common situations. In the transactions discussed here the homeowner benefits by being able to escape a damaging foreclosure and the real estate investor benefits by being able to make a profit on their investment of time and resources.

Stephan Iscoe
Publisher,
MoneyMakersNews.com

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Learn the Insider Secrets of Buying Bank Foreclosure Properties

10 Things You Need To Know About Buying Foreclosures

by John Montgomery

When it comes to buying foreclosures, every investor needs to be aware of certain aspects that can either make or break their bargain. The appeal of a foreclosed property is often found in the hidden potential that a home is thought to possess, but the fact that it can be purchased at a price that is often far less than the current market value is an equally attractive incentive to most buyers. While foreclosed properties can and often do produce a profitable return for investors, it’s important to keep the following in mind when perusing properties:

- Not every foreclosure is open to inspection. This means that you may or may not be able to view or evaluate the property, and could be required to make a decision based on nothing more than a visual and any information provided in the foreclosure listing.

- If a foreclosed property is open to inspection, it will be up to potential buyers to hire an inspector for the purpose of evaluating any necessary repairs or improvements. This will aid investors in the decision as to how much money they wish to pay for a property by giving them an indication of the work and cash needed to restore it.

- If you plan on buying foreclosures while they are still inhabited, either by the previous owners or renters, you will be responsible for removing them. In some cases, eviction may even be necessary.

- Buying foreclosures means purchasing a property ‘as is’ with no guarantee as to its condition.

- Investors who plan on buying foreclosures from HUD are permitted to enter the bidding process if no person(s) wish to bid as an owner-occupant. The initial phase of a HUD foreclosure auction is open only to those who wish to live in the home.

- Each state handles the process of buying foreclosures differently, but nearly every one offers a redemption period that would allow the former owner to regain control of the property by catching up on payments and interest. Buying foreclosures means that you need to be aware of local laws and how they may affect the ownership of a property.

- If you require financing, it’s important to check with a lender to arrange for a mortgage before placing a bid on a foreclosure. In at least one respect, buying foreclosures is similar to the purchase of other real estate in that the failure to complete the transaction may result in the loss of any earnest money provided.

- Prior to buying foreclosures, or any other type of real estate investment, do your homework. Homes built before 1978 may contain lead paint, which is why it’s important to learn as much as possible about the home’s age and condition, along with other potentially concerning aspects of real estate before signing on the dotted line.

- Successfully buying foreclosures as an investor means knowing the current market value for comparable properties in the area. If you plan to restore the home, you will need to figure in the cost of repairs and calculate a reasonable selling price in order to determine a feasible profit.

- Investors considering buying foreclosures can find local listings through realtors, lenders, the U.S. Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA) and various other public auctions.

The information contained in this article is designed to be used for reference purposes only. It should not be used as, in place of or in conjunction with professional legal, financial and/or investment advice regarding buying foreclosures. For additional information, consult an attorney who specializes in real estate and/or financial matters.


To learn more, visit www.buyingforeclosureinfo.com, which offers helpful information on buying foreclosures.

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Learn the Insider Secrets of Buying Bank Foreclosure Properties