You Can Make HUGE Profits from Foreclosures!

Foreclosures can be purchased during different phases or time periods. There are many steps in the foreclosure process. In the first few steps, the person who owns the home is still living in the home and dealing with their financial issues. This is the preforeclosure phase.

Some real estate investing programs advise that this is a good point to try to acquire a property because it offers the best chance to make the most money. Listening to the advice of some of these programs, I have contacted and met with some homeowners in this situation. I would always listen to the homeowner and instead of trying to find a way to get their house, I would offer information and resources to help them. You see, many people facing foreclosure are just not aware of all the options they have available to them to help solve their problems.

I have always felt better by referring them to helpful resources. On several occasions, I have even given them the name and number of my mortgage broker who I have known for ten years. I sleep better knowing that I empowered someone with knowledge to hopefully improve their situation.

NOTICE OF DEFAULT!!!

This phase of the foreclosure process is called the NOD or Notice of Default phase. It is when the homeowner receives a letter saying they are in default because they have not paid their mortgage as agreed. They have several months to rectify the default and bring their account back into good standing. But this means paying the arrears in a lump sum.

If the default is not cleared, the bank or mortgage company will proceed to recover or repossess the house. Once the bank recovers the home it will be sold at an auction. This is another phase at which a foreclosure can be purchased. Unfortunately, the days are long gone when you can walk into a property auction with a few thousand dollars and walk back out with a home. There are too many hands in the pie who have learned the old secrets and have locked out the regular Joe and Joetta.

$1 AUCTIONS!!!!!!!!!

Recently, my sister attended an auction because they advertised bids starting at $1. She had diligently researched many properties. She drove all around town to various properties. She went inside all these homes and made notes of what was wrong with each of them and what needed to be fixed. She spent about 3 weeks getting all this information and narrowing it down to 2 or 3 houses that she thought she could afford. She figured that even if the bidding reached upwards of $20,000 she could afford the property.

But as I stated before, everyone has their hand in the pot. This is what she told me happened:

Auctioneer: “Ok, the starting bid on this next house is $1”. Ok, can I get a bid for seventy-five thousand, eighty, eighty-five, ninety!”

And the bidding began!!!

When she told me that story, I had to pick my jaw up off the floor. All I could say was “Wow!” And when I could talk again all I could say was “Is that how they do it, now?”

So, as you can see, auctions might not be the best way to acquire an REO home. REO is the abbreviation for homes owned by the bank. It stands for “Real Estate Owned” (by the bank).

REO Properties

The final phase of foreclosures is after the auction. You see, at the auction, the bank will have a representative there in the audience bidding on the property. Banks can no longer afford to let homes get away for $1 when they had a mortgage on it for $395,000. So, they have to recoup some of their money –and nowadays, they want it all and then some. That’s why the auctioneer jumped from one dollar to seventy-five thousand. He knows the game and is a major player in it. The $1 simply lures the uninitiated and hopeful to the auction in the first place.

So, now the bank officially “owns” the home after receiving the winning bid at the auction. They are now REO Properties or REO houses and since banks are not in the business of owning homes, they have to sell them. There were days in the past when banks would sell homes for cheap prices. But now and especially in locations like California, they want top dollar for their homes. So they hire a real estate agent and put it on the market. They want to sell it for enough money to break even and hopefully make a profit.

Where can YOU make money?

I have purchased foreclosures in the final phase. This is where I feel comfortable making money because I don’t feel guilty trying to low-ball a purchase price from Random Mortgage Company #1 or ABCDEF Lending Company #804.

I have learned a very important lesson when buying REO’s:

There are a gazillion of them out there. Surely there is one out there with my name on it that I can purchase for the price I want to get it at! Check out these foreclosure markets

So, if Random Mortgage Company #456 is listing five thousand houses all of which I KNOW are overpriced (no matter what anyone says, we are in recession!) then I have no problem offering to buy it for HALF of what they are asking for it.

Now, let’s be real, am I going to get many of my offers accepted? Let’s see, if they are asking for $459,000 (I just made that number up because I live in California) for a house and I offer $229,500… I’d say the answer is probably not.

BUT….if I do this over and over and over again, the law of averages and statistics dictates that eventually one of my offers will receive a YES!

Think about it. If you ask 100 people to give you something, surely two or three or four of them will say “Yes”. That’s how you have to work this foreclosure thing.

Now is it worth it? Well, let’s look at the numbers. If the bank is asking $459K and on your 92nd offer ($229,500 – half) you finally hear “Your offer has been accepted” will you have made money? The answer is definitely!!!

When the bank contracts with a real estate agent, the agent completes a market analysis. This report tells the bank how much they should ask for relative to how much nearby properties, comparables, have sold for within the last 3 to 6 months.

WORK THE NUMBERS!!!

So, the $459,000 (remember that I made up that number) is somewhat of the ‘going rate’. That means that if you bought it for $229,500 you have made the proverbial killing. It also means that you can turn around and sell the house the next day for $329,500 and make a hundred thousand dollars!

Why can you sell it the next day? Remember the market analysis that the real estate agent originally did. Well, the sales price of $459,000 was calculated based on nearby properties having sold for around $459,000. So, a price of $329,500 is a bargain for the next person purchasing. It’s a win-win situation.

You’ve made $100,000 by purchasing a bank foreclosure and the person who you sold it to has made over $100,000 in equity ($459,000-329,500= $129,500). Technically, they also could sell it and make a quick $50,000 if they sold it for $379,500. Do you see the pattern?

I’ve also learned something else that this example shows:

Always leave some money on the table for the next person!

So, this is a very do-able foreclosure-buying strategy. You just have to work the numbers. You have to be diligent and ready to deal with agents who laugh in your face when you make an offer for half of what the asking price is.

We’ve all heard that one thousand people turned down Colonel Sanders before he finally got someone to back his Kentucky Fried Chicken restaurant. How many of us have the persistence to ask 1,000 people the same thing over and over again and keep hearing “NO!” or “Are you crazy!”

But this is definitely a workable strategy if you choose to keep on working it. Buying foreclosures can work and it can make money for you!!! Also see Tax Liens and Foreclosures, REO's, bank owned properties, reo properties.

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