Properties in foreclosure are often an excellent source for single-family home rehab and repositioning. Coming from a family that actively owns and operates real estate investments (I’m the third generation to be in the biz) I’ve seen my fair share of houses, blocks and neighborhoods fall into disrepair, then, after the foreclosures are handled, the same places rise again as up-and-coming, hip, rehabbed neighborhoods.
Once you have cash, or your pre-approved mortgage in-hand (remember, you are also going to have costs associated with the rehab itself!) you can begin your venture.
The first step, of course, is finding the right property. While foreclosures are abundant in depressed or falling real estate markets, they are also out there when the market is strong.
Like everything these days, you can start your search on the computer. Online platforms like Zillow have search features that include “pre-foreclosure” and “foreclosure.” Note, the information on websites can be old, so don’t get too attached to a property until you’ve confirmed its status. Another great resource is Multiple Listing Service (http://www.mls.com/ForeclosureListings/) which can often give you more details than other online sources.
For a more old-school approach, that also lets you get a sense of the neighborhood and the potential for repositioning, try walking or driving around the area in which you are thinking of investing.
Newspapers, in some cities, will have notices because lenders are required, by state law, to advertise pre-foreclosure and foreclosure properties. Which brings up lenders, or banks. Knowing the mortgage team at a bank, and knowing when that team publicly discloses information about properties in pre-foreclosure, or foreclosure, is a definite plus in this business.
The County Recorder’s Office is a great place to confirm the status of a property– but you usually need the name of the property owner. (Which, to proceed, you’ll need anyway.) Lenders file notices at the County Recorder’s Office indicating the borrower has defaulted on the mortgage, usually within three to six months of the first missed payment. Again, laws vary by state.
One way to find the name of a property owner is to contact your local Assessor and/or Property Tax Records office and give them the address. Sometimes simply Googling the address will turn up the name, too.
Getting the name of the owner is crucial to step two, making an offer on the property. I always recommend dealing directly with distressed owners because they need to get out from under the burden of their financial problems as much (if not more) than you need the property.
Common reasons for defaulting on mortgages include illness, divorce, job loss or even a death in the family. The money that you can offer for the house is much-needed. The owner needs out, period. You are helping, plus there’s no commission or other large fees.
I suggest sending a letter to the owner, (or owners if you are considering more than one property) stating exactly that. For instance, “I wish to purchase your home in a quick transaction, directly, with no fees.” My book, Purchase, Rehab, and Reposition Commercial Investment Property, has the full text of a sample letter.
Foreclosure is a lengthy process, and the timeframe and laws vary by state. By offering to work directly with the owner and, if at all possible, pay cash, you are saving everyone time, money, and emotional wear and tear.
When an owner contacts you (by now, you’ve done your research and know what’s a fair offer, and have the paperwork drafted) you can move forward with viewing the property and closing the deal.
Once the house is in your hands, it’s important to remember that this is an investment, not your dream home. To maximize your profit make only the physical enhancements required and paid for by the market. To ascertain what the market requires check-out other properties in the area. Go to open houses, do some research on other houses that have been through the buy-and-sell cycle. You bought it “as is” remember, so whatever issues the property has are now yours to deal with. Make sure you spend your fix-it-up dollars wisely. Cosmetic rehabs don’t need to luxurious, just in line with the surrounding properties and the standards of the neighborhood.
With good research, cash or a pre-approved mortgage in hand, and some roll-your-sleeves-up hard work, properties can go from being a foreclosure nightmare for a distressed owner to a great investment for you.