Let me give you 9 great reasons why I think pre-foreclosures is the place to be over the next 12 to 18 months.
- The leads are very easy to locate;
- You are only dealing with motivated sellers;
- There is an absolute deadline for the seller to have to make decisions;
- Banks are more motivated than ever to offer deep discounts on non-performing loans;
- You can create equity and big profits where it doesn’t presently exist;
- You do not have to use any of your own money’
- You don’t have to have good credit;
- You can do the deals most investors are turning away; and,
- You will know your profit margin before you commit to controlling the property.
The “Short Sale” is becoming an exceptionally powerful investment tool now that lenders are more motivated to authorize the sale of non-performing loans at deep discounts. Lenders are willing to take shortages on their loan proceeds to avoid having to take the properties back and incur the substantial costs involved with REO Asset Recovery and Property Management.
Lately, it seems that everyone is talking about short sales and is either trying to negotiate them or is trying to learn how to do them. It sounds great to be able to deal with a bank and negotiate a discount on a non-performing loan and create equity out of thin air, but the truth be known, while short sales can be quite lucrative, they are anything but exciting. Doing the leg work and preliminary requirements can be frustrating, time consuming and tedious.
Most real estate investors look to buy pre-foreclosure property where the seller has equity and is willing to walk away from it. I know this to be a fact because it is what QuadReal has done for the last two years. With most pre-foreclosure property of late, this is not the case. Most properties in foreclosure today have loans developed in late 2005 through late 2006 wherein the property is 100% to 125% leveraged and the owner is 4 to 6 months behind in the payments. This kind of arrearage can add $5,000-$7,000 in additional costs, only adding to the apparent futility in pursuing the property.
When properties are maxed out with mortgages and leveraged well beyond their Fair Market Value, most investors will pass on the property if there is no opportunity for profit. Sounds logical.
Knowing how to work a short sale is like being able to create equity out of thin air. And the beauty is that 90% of your competition doesn’t know the first thing about short sales or how to make these deals work. You have much less competition in this segment of the market than any other part of real estate investing.
When there is no equity in a pre-foreclosure property, we are looking for deals that are least 90% financed and that have a low LTV on the first mortgage and a large second or third mortgage behind it. The profit in this scenario is derived by getting the junior lien holders to deeply discount their mortgages. Should you also be able to get the first position mortgage discounted, well that simply qualifies as windfall.
The homeowner cannot facilitate a short sale on their own mortgage. You as the non-related third party, once given authorization from the owner, can contact the lien holder and negotiate the short sale settlement. If the property goes to the Clerk’s sale, the chance that the junior lien holders will get anything from the sale is slim.
The sooner you are able to get to the seller in default, the easier the short sale process will be. You will have the additional time you will need to negotiate the short sale and get the property on the market and sold.
If the lender ends up taking the property back, they will incur substantial additional costs. Statistics show the average loss sustained by a lender taking the property back can exceed 35% of the outstanding mortgage balance. These foreclosures are then charged off the bank’s records for that year as bad debts. It shows on the year end P & L which can aid them at tax time but in no way helps their bottom line.
When the lender takes back the property, they incur what are called the sunk costs of the loan. In addition to that they also incur direct and indirect costs. Additionally, the lender is penalized by the Federal Reserve System for having too many REO properties on their books. If the lender exceeds a certain percentage of their assets with REO properties, their ability to lend is diminished by a proportionate amount. Additionally, they are required to pay a higher rate for their funds.
For these reasons, lenders generally are very motivated to get these properties off their books as expeditiously as possible. They are even more motivated however to get rid of the non-performing loans before they become REO properties.
This is where the investor, knowledgeable about short sales and the requirements of the lender, can capitalize in this down market. If you cannot find properties in foreclosure with sufficient equity and motivated owners who are willing to walk away for nothing or a small portion of the equity, then you should be looking to the over-leveraged properties with a low LTV on the first mortgage and large junior liens behind it.
These are prime candidates for the short sale. The owner is motivated, has no equity and knows it. He just wants help and you can provide that, providing you become knowledgeable and efficient at the short sale.
You sign a contract which is contingent on bank approval of the short sale. I suggest that you also get the deed if possible and have the seller sign the other needed documents at that time as well. Before you contact the lender you will perform all the due diligence necessary to develop the big-picture of the property deal.
You should know the market value of the property. You should ascertain the repairs necessary to bring it up to market value and establish costs for the repairs. You should know about and quantify all others debts attributable to the property, including taxes and mechanic’s liens.
You should establish what your maximum offer will be and in so doing, establish what amount of profit you can expect to experience from the re-sale. Put all of these components together and then you can contact the lender with authority granted by the owner.
This is what is called “making money on the buy”. You will make money the same day you complete the short sale. You obviously can’t spend it until all the loose ends are tied up and you get the property sold. It is so much safer than buying an asset and hoping it will appreciate over time or worrying that the market will fail or the neighborhood will deteriorate.
QuadReal Investment Group, Inc. has developed a comprehensive program on the ethics, legality and business of pre-foreclosure real estate investing in Florida. We have developed a system for all 67 counties in Florida and a comprehensive applications manual to guide you through every step of the short sale process.
Our Pre-Foreclosure Investments Program is designed to take you step-by-step through an easy to understand program. Smart real estate investing is the ultimate home-based business. You have very little start up costs, virtually no inventory, a very low overhead and there is no extensive education required.
I don’t mean to infer that no education is required, quite to the contrary. That is what our program is designed to do, whether you are a novice or a well-seasoned investor. If you apply yourself diligently to the materials and exercises in our program, you can be earning substantial money in the next 90 days.
This is not a get-rich scheme. This is an actual, real-life, no-nonsense system designed to get you from Point A to Point B in pre-foreclosure investments. You have to first have the desire and that is something we cannot instill in you. We can give you the knowledge and fill you full of faith in our program, but without action all is in vain.
Contact us invest@quadreal.com or call us at 352-465-7574 for details and costs. You will not find a program that even comes close to the thoroughness and completeness of our Pre-Foreclosure Investments Program. You can select what counties to work in and become an expert.
We look forward to hearing from you soon. Good luck and may God bless your venture! |
