I am going to answer the top three questions I get about buying a home in pre-foreclosure. The questions are why do you buy a property in pre-foreclosures, how do you find a pre-foreclosure, and negotiating a short sale.
Why do investors buy properties in pre-foreclosures? There are many reasons why we buy pre-foreclosures, but the best one is that we help people avoid getting foreclosed on. Your not just making money, but you are actually helping someone keep from going thru a embarrassing situation. A foreclosure mark on your credit is the worst mark you can get, and it stays on there for 7 years. Another reason why investors buy pre foreclosures is because the house will normally be in much better condition. The owners of the houses normally has not trashed the house out yet and you can save a lot of money on repairs. Also, you can buy the house for pennies on the dollar if you do it right.
How do you find a pre-foreclosure? I use REALTYTRAC to find pre-foreclosure. REALTY TRAC will give you a list of all the houses that are in pre- foreclosure, and trust me that is a lot better then going to the county clerk’s office and trying to get a list of pre-foreclosures. Now the fun part! You get to call the people on the list and tell them that you would like to buy there home. A lot of people are not going to be interested and might even get upset with you, but once you find that right person it will all be worth it. Another trick of the trade is to send out flyers to the homes.
How to negotiate a short sale? A short sale is when the bank takes less then what is owed on the property. Best case is that you find a person in pre- foreclosure that property is worth more then what is owed, but if not then you will need to do a short sale. Why would a bank accept a short sale? The answer is caring cost? If the buyer is not making the monthly payments then the bank has to make the payments, pay force placed insurance, legal fee’s to file the foreclosure, and if the state has a long redemption period then it is in the banks best interest to accept a reasonable short sale. The first thing you need to do is find out the value of the house, and what the full payoff is. Then you have to negotiate the deal like any other deal as far as price. With a short sale the owner of the house will not receive any money due to the bank is losing money, so I would suggest to offer to pay for the buyers moving expenses and 1st month rent to motivate them to accept the deal. Pre-foreclosure and short sales are not easy, but can be very profitable if done right.