The Reality of Foreclosure Investment

March 13th, 2008

1. The concept of purchasing real estate for a sum that could be the tenth of the value of the home is, UNREAL!

The Reality is that homes in Washington that are being sold at auction are being sold at close to market value. Why? 75% of all homes that are in foreclosure where bought after 2003, of that 75% of foreclosed home 85% of them where refinanced in 2005. After these home where refinanced people pulled there equity out and did not pay off other debt, they spent themselves into more debt. So now in the beginning of 2008 these homes are going to auction with little to no equity in them. Which makes purchasing at auction fruitless. The reason for this fruitlessness is not only have you just paid off the primary lender at about 20% of the real estate actual market value. You now have to pay the back taxes, and you will need at least 10% market value of the home to repair its distressed state. Now you are Possibly sitting on 10% equity if you are lucky. In this market there is no way for you to sell the home at market value, which means you will need to sit on the property until the market recovers. Which is 2 to 3 years away.

2. Purchasing a home at auction for the minimum bid is, UNREAL!

The Reality is at auction there is about 60-70 people there on any given Friday. 60% of those people are representatives of companies that have millions and millions of dollars of purchasing power. You will also see everyone of the people with a bundle of papers they are flipping through, these papers are title reports. Which says they have done their homework on every property that is being bid on that day. So when a property that will yield the profit they are looking for, they have a RED LINE mark, which is the maximum bid possible for profiting on that purchase.

3 . You can get financing to purchase that property at auction, this is UNREAL!

You must have CASH at auction. when that auctioneer says sold you hand that person a cashiers check for that amount. You asking yourself, “How do I get a cashiers check in that amount in that moment?” You don’t. You have to bring multiple cashier checks in many denomination, so you can giver them as close to that price as possible, and you will be over paying. How do I get that money back? Right. In 4 to 6 weeks you receive a check back from the Trustee company for the difference. There are Hard Money Lenders, but barrowing money from the mafia never goes well.

4. Well I can just take over the home owners mortgage and do a “Quick Claim Deed”, UNREAL!

The Reality is you are leaving yourself open for being sued by the previous owner for fraud, and with the States Attorney General is prosecuting these cases and the previous home owners are not loosing. Why Fraud? Because the home owner is under extreme duress.

What is a good way to invest in foreclosure?

1. Work out a Win/Win deal with the home owner. If you don’t know what a Win/Win deal is. It is where everyone walks away from the negotiation table unhappy. And if there is now way for the home owner to win, because of the situation they have put themselves in. Be honest about that. That way respect is created, and at least they are able to relieve themselves of the burden.

2. Do not buy a house just because it is in foreclosure, make sure the equity is there.

3. Broaden your scope of equity investment. More time then not I have gotten great deals, just because the home owner needs out of the home. These people are not in foreclosure or in bad financial situations, they are inpatient. Use that. Close the deal quick, so they feel relieved and less stress. You will be surprised how many people hate waiting and would rather not have stress then money.

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