It’s not necessary to have a huge pile of cash and perfect credit to buy a wholesale property and resell it for a profit. It’s especially not necessary in the preforeclosure market. In some cases, you might be able to identify a property in preforeclosure and pass the information onto another investor for a bird dog fee. Some lenders are pretty particular about the language you include in your contract, so you will not able to assign the contract to another investor prior to closing. The time it takes to close a short sale property might be too long for any retail buyer that you line up, but you can pass the wholesale deal onto one of your cash buyers when it is approved. Also, they can make great buy and hold or cash flow properties, because you can buy them for wholesale prices and they will still cash flow nicely. In some cases, you might consider doing a Subject to deal with the seller, where you bring the loan current and buy their property subject to the existing financing.
Preforeclosures are houses in the default (1st) phase of foreclosure; where the bank has filed initial foreclosure papers but the sheriff sale or trustee sale where the bank auctions off the property, or repossesses it if no-one buys at the auction, hasn’t occurred yet. Buying during the preforeclosure phase is one ways for anyone to get involved in wholesale real estate investing. With some specialized knowledge you can buy property for wholesale and profit from it using a quick cash , cash flow or rental investment strategy. You will want to consider which strategy you are going to use to get out of the deal when you are gathering data about the deal.
Here are 8 reasons why it is great to buy a property via the short sale process.
1.) When people are in default on their mortgage they have stopped making payments to the bank. So when you are negotiating with the seller, and the bank, right up until the point where you buy, no-one is making the payments. It helps all parties to be motivated to do something and make compromises, thus you will tend to get the property for far less than what is currently owed.
2.) Preforeclosures are a very well defined niche market. One of the most deadly mistakes rookie investors make is trying to be a jack-of-all-trades, going after any and every kind of property in any area. The result of this lack of focus is minimal profit margins, over budget repair projects, and fewer deals per month acquired and sold. Short Sales are a very defined market, they allow you to develop focused marketing campaigns and standardized processes to get deals completed and closed.
3.) One of the fundamentals of real estate investing is contacting and talking “only” to motivated sellers, and avoiding all the rest. Sellers in preforeclosure are some of the most motivated sellers you will find. Their world has been turned upside-down, they are about to lose their house, and their motivation is such that they just want out of the house and the bank off their back. By buying houses from people in preforeclosure, creating 30%+ equity spreads on houses often in good condition is not a difficult thing to do.
4.) Buying houses in preforeclosure enables you to create unusually large equity spreads. Recent economic uncertainty has caused a lot of foreclosures, and rising rates will cause more in coming years. If banks had to take back all of the properties that went into foreclosure the FDIC would shut them down. They know this, so they try not to take properties back they don’t have to. By requesting the lender discount what is owed on their payoff, large spreads of equity can be created on houses that are totally “maxed out” with loans. This can’t be done on loans not in default.
5.) Because lenders are under pressure to liquidate bad loans rather than take the property back, large discounts can be negotiated. After becoming familiar with the issues that cause lenders to discount, larger and larger discounts can be achieved as you hone your negotiating skills.
6.) If your plan is to buy and hold the property, you can buy it for an amount that will allow the property to cash flow that much easier in that area. Your loan will be paid by the tenants that much sooner.
7.) If you have ever bid at auction for property at the courthouse steps, you are only too aware of the competition breathing down your neck. Lots of mind games. You will need to have access to cash right away and on a regular basis, if you are going to buy property here. You will avoid the bidding process and the mad rush if you can acquire the property in the preforeclosure phase. You will probably get it for a lot less, because the lender is trying to recoup court costs, attorney fees, and other fees incurred during the foreclosure process leading up to the auction. Beat the rush and buy early.
8.) You might be able to work out a deal with the seller that you will bring their loan current, if you can buy their property subject to their existing financing. Essentially, you are piggybacking off of their loan. The loan will remain intact until it is paid off in full either buy a purchase or a refinance. One word of caution, you will want to know all aspects of the loan agreement before you enter into a deal like this one, because the loan may have a balloon or the interest rate may adjust or their might be a prepayment penalty fee. Do your due diligence.
Make no mistake about it, there are many ways to make healthy profits in real estate investing. But when you look at how easy preforeclosure makes it to buy wholesale properties and resell for a profit, all the while helping people out of difficult life circumstances, it makes sense to pursue real estate investing this way if you can be patient and persistent.