Buying foreclosures is one strategy to use in your real estate investing business. However, distressed properties due to foreclosure are not the only thing you should be looking at when trying to find properties at significant discounts. Here’s a list of different conditions that will usually lead you to a motivated seller.
Divorce-Usually when a married couple is getting divorced the court will demand the sale of their home. This means liquidating all of their assets, which in many cases means that any co-owned real estate is one of the first things to be sold. Divorce sales usually equate to good deals, and most of the time the homes are in relatively good condition, not needing much renovations or sprucing up. More often than not these homes will be sold at a good discount because the people are looking to move on and there is little emotional attachment to the home. A great place to find divorce sales is through a divorce attorney. If you make a connection with a divorce lawyer he can give you leads for buying houses.
Neglect-When a property owner can’t keep up with maintenance and improvements on their home due to monetary or health reasons, it offers an opportunity for the real estate investor to get a great deal. Most of the time, this house will be an eye sore, making it the worst house on the block. Due to the investment necessary to get the house back in shape, most homeowners will sell the property at a deep enough discount to fit inside the investor’s buying parameters.
Job Transfer- When a home owner takes a job in a different state (or even country), the new employer will usually pick up the expenses of a quick move, resulting in a vacant property. This homeowner is usually looking for a quick sale. If you can offer a fast closing they are most likely willing to sell the home at a nice discount. Most homeowners will not want to move out of state and leave a vacant home with the chance of it being broken in to or vandalized, incurring more headaches then the move has brought on them already.
Death-Unfortunately there are situations when a loved one dies suddenly. Their family may not want to or can’t afford to stay in the home. Usually they will be looking to get rid of the house as quickly as possible to avoid the costs of owning the home, even if it’s vacant. They may be willing to sell at a discount in order to quickly move on with their lives and you may be able to assist them in accomplishing that.
Estate-A family member or heirs have inherited the property. Most of the time, they are not living at the property. They are often willing to sell the home at a discount and with a quick deal because they want the money now. Most of the time, these properties are distressed or outdated and need renovations.
Landlord –Tenant Disputes- When a landlord has major issues with a tenant, it can create an opportunity for the smart real estate investor. These disputes can come in all shapes and sizes, and can occur in anything from single family homes to a multi-unit building. When a tenant doesn’t pay their rent this becomes a hardship for the landlord, and immediately affects their business’s bottom line. If a landlord becomes behind on his own mortgage he will most often look to sell the property to be rid of the headache and save his credit. These buildings are not for the weak. You will most likely have to evict or start with new tenants, but the profits have the potential to be oversized, especially on a larger building if you get it at a good discount.
Packages-If a seller owns several properties he might be willing to sell them at a discount if they are bought as a package. If you can find the right package deal you can often times turn a good profit. The challenge with package deals is that you need a lot of capital to purchase these, and you need to make sure your numbers are all correct.
Short Sales-This is when the owner of the property has missed three or more consecutive payments to the bank or lending institution. At this point the bank will begin a foreclosure action. Instead of the bank moving forward and foreclosing on the property, the home owner would be willing to sell the property for less then what is owed on the mortgage. The bank needs to approve this sale. This procedure usually takes five to eight months. You will be buying directly from the owner, the bank will be taking the loss. The homeowner walks away without any money, and you potentially get a house with a lot of equity already in the property.
Foreclosure- REO(Real Estate Owned) Bank Properties-If you have liquid cash available on hand, you can purchase foreclosures directly from the bank. Almost all of the time these are cash only properties. If you look in your local newspaper you can find real estate brokers who specialize in selling Foreclosed properties. Usually the bank has a relationship with a broker in a territory and gives them all of their REO properties to sell. If you can find a broker who is willing to call you when they have new inventory and you are ready to buy immediately you can make an excellent living. These homes are usually vandalized and distressed but are sold at a deep discount.
Auctions-This is when a bank has foreclosed on a homeowner and they are getting ready to sell the property at the local courthouse. These properties will be advertised in the local newspaper usually up to 5 weeks in advance. These houses are either occupied with the homeowner who has stopped paying or are vacant. If the homeowner is not willing to show you the house you will be buying sight unseen, at least the inside. This is risky because you don’t know the true condition of the house. You must do your due diligence “homework” and expect the worst. The profits however can be huge!
Vacant Properties-If the seller has a property that is vacant he might be willing to take a quick cash deal for many reasons. Maintenance costs, real estate taxes, utilities, vandals, or even squatters. If you can find a vacant property you usually can make quick profits. A vacant property is not making the homeowner any money by sitting vacant. If it is vandalized it can cost the homeowner tens of thousands of dollars.
Inexperienced Realtor-If a realtor doesn’t know the area they may undervalue the homes worth. If you can realize their mistake you can buy the property and take advantage of this opportunity. This doesn’t happen too often, especially since the market is becoming more and more efficient, but it’s still worth looking into when the occasion arises.