Looking for an “in” to real estate investing? Working a nine to five job swapping time for money can be incredibly dispiriting. After the futility of it all hits home, it's all you can do to limit the number of home business opportunities you investigate to twenty per week. One of the more compelling home business opportunities is real estate investing. Real estate investing is the perennial wealth builder, and the transition from working a job to achieving wealth through real estate investing is becoming increasingly well documented. You've probably thought about investing in real state yourself but you've not gone for it because you thought you needed tens of thousands in savings for a down payment, and perfect credit along with strong banking relationships.
Well, you can get all that together if you want. It doesn't hurt to have those resources. But it's not necessary to have a huge pile of cash and perfect credit to buy a house cheap and resell it for a profit. It's especially not necessary in the preforeclosure market. Preforeclosures are houses in the default phase of foreclosure; where the bank has filed initial foreclosure papers but the sheriff sale or trustee sale where the bank auctions off the property, or repossesses it if no-one buys at the auction, hasn't occurred yet. Buying during the preforeclosure period is one of the best ways for anyone to get involved in real estate investing. With little more than a few hundred dollars and some specialized knowledge you can buy a house at a substantial discount and resell it retail picking up a five figure profit check in the process.
Don't Believe It?
Well, let me give you seven reasons why it's true:
1.) When people are in default on their mortgage they have stopped making payments to the bank. So when you are negotiating with the seller, and the bank, right up until the point where you buy, no-one is making the payments. For novice investors worried about holding costs this is a huge advantage.
2.) Preforeclosures are a very well defined niche market. One of the most deadly mistakes rookie investors make is trying to be a jack-of-all-trades, going after any and everything they can lay their eyes on. The result of this lack of focus is they are soon back at their jobs. By being a very defined market, preforeclosures allow you to develop focused marketing campaigns and standardized processes to get deals completed and closed.
3.) One of the fundamentals of real estate investing is contacting and talking “only” to motivated sellers, and avoiding all the rest. Sellers in preforeclosure are some of the most motivated sellers you will find. Their world has been turned upside-down, they are about to lose their house, and their motivation is such that they just want out of the house and the bank off their back. By buying houses from people in preforeclosure, creating 30%+ equity spreads on houses often in good condition is not a difficult thing to do.
4.) Buying houses in preforeclosure enables you to create unusually large equity spreads. Recent economic uncertainty has caused a lot of foreclosures, and rising rates will cause more in coming years. If banks had to take back all of the properties that went into foreclosure the FDIC would shut them down. They know this, so they try not to take properties back they don't have to. By requesting the lender discount what is owed on their payoff, large spreads of equity can be created on houses that are totally “maxed out” with loans. This can't be done on loans not in default.
5.) Because lenders are under pressure to liquidate bad loans rather than take the property back, large discounts can be negotiated. After becoming familiar with the issues that cause lenders to discount, larger and larger discounts can be achieved as you hone your negotiating skills.
6.) If your plan is to buy and hold the property, having good enough credit and financials to get bank financing excludes a great many people from getting into real estate. On top of that, if you do get a bank loan, your financial exposure is at it's maximum when everything is in your own name and personally guaranteed. Buying houses in preforeclosure allows you to simply take over the existing financing already in place. No qualifying needed. You can take title to the property in a land trust, begin making payments on the existing mortgage(s), and still get all the tax advantages, appreciation, depreciation without any of the risk of being personally liable for the mortgage and the property.
7.) If you have ever bid at auction for property at the courthouse steps, you are only too aware of the competition breathing down your neck. Lots of mind games. The 40 thieves are talking trash to you trying to get you not to bid. If you are Larry Bird, no problem. Make sure you have $500K on your credit line though. However if you are not the ‘Bird' and you don't pack half a mil' of credit, you can sneak in and avoid this NBA showdown by buying the house during the preforeclosure period… before the auction.
Make no mistake about it, there are many ways to make healthy profits in real estate investing. But when you look at how easy preforeclosure makes it to buy houses cheap and resell for five figure profit checks, all the while helping people out of agonizing life circumstances, it makes little sense to pursue real estate investing any other way.