If you're active in real estate investing, you may already
realize one of the biggest issues real estate investors face:
Finding Great Deals.
FORECLOSURES AT A 52-YEAR HIGH
With foreclosures at a 52-year high, there are thousands of
deals available on the market, if you know where to find them
and how to secure them. The first challenge you'll face once
you locate the property is that most of these homeowners are
mortgaged to the hilt. They have no equity, and big loan
payments. In fact, many actually owe more than the property is
worth!
Most investors will walk away from these deals because they see
no obvious profit. That's because they don't know about the
Short Sale.
WHAT IS A SHORT SALE?
The concept behind the short sale is simple: your goal as a
real estate investor is to convince the bank to sell for less
that is owed as payment in full. Of course, this concept is
easy - buy the foreclosure from the bank at a big discount,
sell the real estate, and make money! So how does it work?
SUCCESS WITH SHORT SALES CAN BE ACCOMPLISHED IN THE FOLLOWING
STEPS:
Step 1: Do your research.
Many new real estate investors make the mistake of waiting
until some subscription service sends you the list. The
disadvantage is that a ton of other investors are also getting
the list. If your first contact is to send a letter, forget it.
Your letter will be lost in the huge pile the homeowner is
getting from all sorts of other investors, credit repair etc.
99% of the time these go directly into the trash or a big
basket unread. If you go directly to their door you've got a
chance.
So if you're going to mail, be the first to act when the
default notices are printed in the local newspaper. Or be the
first at your courthouse, if that's where they're filed first.
The key to finding investment-worthy properties is to act
quickly. Be disciplined and mail out the letters the very same
day-in fact take them to the post office. In this business, the
early bird really does catch the worm.
Tip for Success: If you don't have a company that publishes
your notices of default, check with local title companies or
bankruptcy attorneys to see if they offer these services; you
need somebody familiar with the subject that visits the
courthouse often.
Step 2: Develop your marketing strategy.
When you have located foreclosures, make sure your timing is
swift. Mail your initial letters of approach to the homeowner
the same day you discover the property. Placing ads in your
local papers also helps to generate leads and find homeowners
eager to avoid the credit penalties involved with foreclosing.
Tip for Success: A typical advertisement strategy taught in
real estate training is to get listed in real estate or credit
section of the classifieds. These ads typically have a bold, to
the point headline, such as "Avoid Foreclosure" or "Stop
Foreclosure, Today!" If you are targeting a specific property
type, or reaching for higher market values, specify this in
your ad. (Instead of simply "Avoid Foreclosure," add your
target market to the bottom of the ad. Example: "Avoid
Foreclosure, call 1-800-555-1212. 500K and up." You'll make
more money in real estate by reaching for high-value
properties, and an ad like this shows your prospects that you
specialize in helping those with higher value homes avoid
foreclosure.
Step 3: Work with the homeowner.
You can't get anywhere without the cooperation, and often
gratitude, of the homeowner. The homeowner you are working with
has obviously run out of options, but you'll need their trust
and confidence if you plan to short sale mortgages. Remember,
in these situations, you are often looked at as the "rescuer".
Make sure you explain the homeowner's part in the process
thoroughly. Once they deiced to allow you to work with them,
there is important paperwork you need them to fill out and
sign:
1. an "Authorization to Release" form that gives you permission
to contact the lenders and the foreclosing attorneys.
2. a sales contract - signed but leave the purchase price
blank. You may need to change the numbers as you negotiate with
the bank
3. a financial statement - to show they can't afford to make
the payments
4. a hardship letter - to explain in personal terms what
happened.
Tip for Success: Remember that this is a stressful time for the
homeowner. It's easy to get caught in the excitement of a
prospective short sale profit. You can get them to make a
decision when you are able to convince them that this is the
right option for them Emphasize the benefits of working with
you, and then ask for them to take action. Make sure to let
them know that once your contract is signed, and the bank
accepts it; they'll be free to move on with their life.
Step 4: Negotiate with the bank.
Although banks don't enjoy taking a loss, it is a simple fact
of the lending business that short sales are a necessary evil
for lenders. Indeed owning the property (a non-performing
asset) is even more expensive than selling it for a loss.
Consider:
Banks use short sales to drop unwanted property quickly without
having to deal with the REO office and go through the long
process of putting the home back on the market. When you speak
with the Loss Mitigation department, remember, this property is
actually costing them money! Federal regulations require
somewhere between $300,000 and $800,000 (or more!) to be held
in reserve by lenders, which is many times over the actual
price of the bad debt.
When you call the bank and ask for the Loss Mitigation
Department (the department that handles properties that are in
foreclosure) tell the person handling the account that you are
trying to help Mr. X with his foreclosure and you are willing
to buy the property from him, but due to the condition of the
property/declining values/etc. you are only willing to pay X
amount. This is where your negotiations begin.
Be firm and polite, but don't ever make threats to not buy or
be forceful in your approach. Loss mitigators are often busy
and overworked, and they want to see you as somebody who is
minimizing the damage - and hassle - of the bad debt.
Tip for Success: Larger banks are the easiest to deal with when
working with short sales and foreclosures. This is because the
larger banks have more resource, more experience, and more
loans! While there are some larger banks that don't work with
short sales at all, other banks, such as Wells Fargo or
Fairbanks Capital, tend to work with a much larger volume of
short sales.
Once you have worked with enough short sales, you'll find that
you have inside contacts at some of the larger banks; be
friendly, ask them about their day, Develop a rapport.
Sometimes, they'll open up about problems they're facing or
current trends, which of course, you'll need to keep on top of!
You don't have to be a real estate pro to see the potential for
making money with short sales, and now you definitely have some
great tools to get started. Great deals in real estate are out
there, and with today's market, your potential for profit is
limitless. Just keep in mind: do your research, market your
services, and treat the homeowners and lenders with respect.
When you use this approach with short sales, you can make a
win-win for everybody, especially the officers at your own bank
when you cash in on your profit!
In the next article, we'll discuss the tricks and tips in
convincing the bank to take a big discount on the short sale.
Best of Success,
Richard OdesseyRichard and Michelle are experienced
investors and founders of the premier site on the internet -
http://www.InvestorWealth.com: training real estate investors
to do high profit deals. Offering Free Teleseminars by the top
real estate investors, how-to tools and kits and hands-on
training with personal advice from experts from the comfort of
your home
Article Source: http://www.articlepros.com
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