Today I will jump into specifics about the first of several types of real estate investing niches you may want to consider – Pre – Notice of Default. (Pre-NOD).
What’s the easiest simplest way to find real estate deals? Be the first to talk to the person who needs the help you provide! You can get a jumpstart on your competition by getting connected to the people who need you the most. Those that are heading toward foreclosure by showing 30/60/90 day late on mortgages but not yet in default are referred to as Pre-Notice of Default.
Why is this a good niche to consider?
- Did you know there were over 1 million foreclosures in 2011. Imagine how many deals you could have done if only you knew about these people needing your help before it was too late.
- So doesn’t it make sense to get a huge advantage over your competition by getting the leads of people who need your services before anyone else does? Of course it does.
Best kept secrets about Pre-NOD leads:
- More than 3% of these homeowners are not living in their house. That’s right – – -VACANT HOUSES
- You get 60 to 150 days more time to work with a homeowner than when you use a run of the mill NOD list.
- You have more time to research every facet of these deals.
- You have more time to pre-sell the property before you close on it.
- You get the deal before mortgage arrearages get out of hand, opening up more opportunities to take property over “subject to” the existing loan as you work on selling it.
What are the downsides of this niche?
- Sellers may not be as motivated because they are not as close to foreclosure. I have found that even those who have received a written notice of default often deny the seriousness of their situation. They have time to work something out with the bank. So if they would rather stay in their home, talking to them early may not help. They will be looking for ways to get caught up before selling. However, if your market is declining, many homeowners would rather walk away from their mortgage than keep a house that is worth 20,30,40 or even 50% less than they owe. (More on how to deal with this situation later.)
- You have to pay higher price for leads.
- Leads for this niche are usually found on credit reports and the credit information is often not posted by creditors until 30 days after the payment is missed. Therefore, the credit report is usually 30 days farther behind than actually noted on credit report or can even be paid up by the time you see it.
- You still have to find houses with enough equity in them for you to buy at a discount. And in many U.S. markets today, this is like finding a needle in a haystack.
What are good market conditions to consider this niche?
- You want to look for the following market conditions in the area (s) you plan to research and invest.
- There is a high number of homes in pre-foreclosure
- Interest rates on loans are high
- Lenders tightening their belts and not flexible
What are bad market conditions where you might want to avoid this niche?
- Avoid focusing on this niche if these conditions exist.
- There is a low number of homes in foreclosures
- Low mortgage interest rates – allow for lowering payments on refinance
- Lenders are flexible to work with those who have been late on their payments
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