I’m interested to hear everyone’s thoughts on their favorite foreclosure acquisition strategy…OR the strategy they plan on using.
Thoughts?
I would not focus exclusively on “foreclosure” deals, but rather search for the best deal from a multitude of sources. Limiting yourself to any one strategy (such as foreclosures) simply makes finding the best deals more difficult.
Good Luck,
Mike
Many times I read on REIclub, “Pick your exit strategy and learn everything about it”. Then, conflicting advice is now being given a lot of the time now saying, “dont focus on one strategy…use them all”.
Are you saying that in general you should know most strategies to have the best outcome, but have one strategy that you know the ‘ins and outs’ of? :beer
There’s a huge difference from strategies for acquisitions and an exit strategy. For acquisitions, why would you want to limit yourself to foreclosures only if there was a house needing some TLC that could be purchased for well under market value due to some needed fix-up and maybe something else (owner moved due to new job, etc)? You would be crippling your business by saying “I’m only buying foreclosures.”
The exit strategy is COMPLETELY different. Why are you buying the property? Will you rent it out? Wholesale? Rehab and resell? How long will you hold it for?
You have to know your reasons for purchasing going into the deal. How you find the deal is of no consequence to your intended goals and exit strategy.
Buying foreclosures will be different than buying a normal house straight off the MLS, so you would want to educate yourself about that. But you’d better know tons about your exit strategy. Do you have any idea of what it takes to be a successful landlord? What paperwork will be required? What are expected prices for rehabbing certain items? What is the current selling market like?
Anybody can use a Realtor and sign a contract. What you do with the place after that is a completely different topic.
Foreclosures take a TON of time.
In my market we have about 150- 200 foreclosure listing a WEEK!!!
I know the Towns and Cities I want to buy homes in so that cuts out a lot of the JUNK right off the bat. Even whittling the numbers down and looking at the dates the mortgages were issued (2005,06, 07 are usually all upside down in equity) It still takes a lot of time to keep up on the foreclosures.
You must go to each individual City/Town hall to do the required lien and title work, by then you find out that out of 25 properties that you started out with, only 3 or 4 homes have ANY equity in them at all. This is the reason banks are getting KILLED and Wall St. is a MESS right now. The 3-4 houses that your left with??? 2 of those will have the auction cancelled because the owners came up with some money. So you spent WEEKS doing research, time and money driving from town to town, to find MAYBE 1 home. That 1 home now goes to auction and 3 bidders show up, they are doing EXACTLY what your doing. They KNOW this is THE ONLY HOME with any equity in it and it gets bid up to within maybe $10K of wholesale. I’m not trying to discourage you, just giving you MY insight. Out of over 500 homes I’ve researched for auctions I’ve actually purchased 2!!! That’s a LOT of time for 2 houses.
As far as buying REO property. I haven’t bought a SINGLE REO home in this downturn. The banks in my area are getting 75-85% retail in most cases and the others (sold for less) are just disasters not worth getting involved in, 100 year old homes with 6 1/2 foot ceilings and additions put on by every idiot who’s lived there for the last 100 years.
Foreclosures CAN work. But from my experience the members here are giving you EXCELLENT advice. You aren’t going to buy many foreclosed homes at auction or through banks at big enough discounts to cover you in a FALLING market. That’s why they’re telling you to look at it as just ONE potential source.
How many auctions have you been to??? If you haven’t gone to more than 3 or 4, start going…you’ll see for yourself EXACTLY what I’m talking about.
I generally agree with the idea that you should be versed in many different investing techniques. However, if you are just starting out, I support the notion that you should concentrate your efforts on the acquisition technique that works best for you in the market we are in today.
No matter what acquisition technique you want to employ, you get the best deal from a motivated seller. Right now, the distressed seller is most likely the seller that is facing foreclosure and perhaps the bank that holds property taken by foreclosure.
You can work pre-foreclosures using short sales and subject to deals. You can work foreclosures by buying at the foreclosure sale.
You can work post-foreclosures by buying the REOs from the banks and lenders.
From 1986 to 2001, I only bought foreclosed property (the REOs). I got great deals from HUD and VA. I have been watching the REOs in one market where I am invested. The banks are beginning to discount the properties in their inventory so I expect to be able to pick a couple of rentals at 50% to 60% FMV for my portfolio in the next two or three months.
With the Bank of America acquisition of CountryWide nearly ready to close, I expect CountryWide will be under some pressure to clear their REO inventory in the next few months. Perhaps you can get some good deals from Countrywide.
Bank REOs are not great sources for good deals. They do come along once in awhile. If you only want to acquire one or two properties a year, then this is a good time to be house hunting in the REO inventory.
Dave - I believe you make a good point. I guess it depends on your goals - how many properties you want to acquire per year. In my case, my goal is to start of with 2 properties in 2008 and 3 in 2009. In this case I feel it would probably make more sense to focus in one strategy first and as I get confident with that strategy I can try new things. For example, right now I am planning to find motivated sellers by searching the MLS for houses that have been on the market for a long time (starting with houses that have been listed for 12+ months, and then moving down to houses listed for 6+ months) and that need rehab. I will keep at it until I feel confident that I understand this process and have seen enough houses. I may consider adding a different strategy in the future…
Just my 2 cents (from someone that is only starting… :O)
How about getting the property under contract before the property goes to public auction and before any other investors get a chance to get the property before you — and then wholesaling it. Seems like there is a BIG market out there for this…but you are right…many people just don’t have equity in their home.
Most of my deals comes from foreclosures…
It’s a tough list to go after like FDJake said, you really have to be relentless with it.
Most of the people that have equity on that list want to stay…
I send them hand written letters, I cold call them, I continue to follow up. This group of people are very often in denial of their situation and you have to be persistant.
You would have an advantage in today’s market to have foreclosure short sale knowledge.
There are a few different ways to acquire properties. Look consistently and you will find a “deal” that will work for each investor.
Have a business plan, goals, and focus.
Knowledge is power. Learn as much as you can about lease options, shortsales, sub2 and contract for deed. Because one of these strategies will be part of either your buying strategy or the exit strategy.
Good luck.
One strategy is to investigate the HUD foreclosure market. HUD has a huge inventory, and is having to greatly reduce prices. Some of these properties are selling at on half the appraised value.
The only thing I can say is that ONE is the most dangerous number in the Real Estate Investing business. One buy strategy, one exit strategy, one private lender— These are a sure way to having your business fail.
Our business is constantly changing with the markets. You need to develop multiple sources of business, multiple exit strategies and multiple funding sources.
This is not to say that you should not become proficient in any one area but that you will need to be able to move around to be truly successful.
Do maintain your focus and do not get sidetracked but also be sure that you have options available to you. :smile
If you are late on your mortgage payments or goin into foreclosure get help deweycheatum&howe.com or email me dewey@deweycheatum&howe.com the also have the foreclosure laws of each state