Ralph R. Roberts - Foreclosure Investing For Dummies

Offer cash for keys and a nonredemption certificate — a signed agreement that the homeowners promise not to redeem the property.

Provide a dumpster in which the homeowners can toss anything they don’t want to move.

Offer to pay for a moving van, or pay a portion of their relocation costs.

Offer to pay the first month’s rent on a rental unit.

Don’t hand over the cash until you get what you need. I’ve experienced several incidents in which homeowners took cash, agreed to move out, and then stayed put. Chapter 16offers some additional suggestions along with instructions on how to have homeowners who resist moving out evicted.

Assuming that you purchase a property for the right price, you’ve already profited from it, but you won’t see that profit until you cash out your chips. Various cash-out strategies are available, as I discuss in Part 5. The following sections provide a brief overview of your cash-out options.

The most common way to maximize your profit is to repair and renovate the property and then place it back on the market in the shortest possible time. Time is of the essence, because every day you hold a property costs you — in monthly payments (if you financed the purchase), property taxes, insurance, and utilities.

The trick to repairing and renovating a property cost-effectively, as I explain in Chapter 17, is planning well in advance and improving the property only enough to meet or slightly exceed the going price. Transforming a $150,000 property into a $250,000 property in a neighborhood where most homes sell for around $150,000 is a huge mistake. Buyers who want a $250,000 house buy in a $250,000 neighborhood.

Your goal in selling a house is to sell it quickly at a price that’s close to its market value. To accomplish that goal, follow these marketing guidelines:

Set the price right the first time. Don’t set a super-high price hoping that the fish will bite. Your investment property is likely to linger on the market, during which time holding costs will continue to chip away at your profit. An asking price that’s in line with comparably priced homes is best.

Get the word out through a successful real estate agent. If you’re thinking of saving money on real estate commissions by selling the house yourself, think again. Homes sell in about half the time and for more money through a real estate agent. What you may save in commissions, you end up losing through holding costs and by having to sell for a lower price.

Begin marketing as soon as you take possession. Marketing begins as soon as you begin your renovations, especially if you start renovating the exterior first. Neighbors notice and begin to gossip, and word-of-mouth advertising begins to take off.

Plant a For Sale sign on the front lawn when renovations are nearing completion. A For Sale sign removes all doubt that the house is for sale.

Stage the house impeccably. Clean and scrub inside and out, mow the lawn, freshen the landscape, remove the clutter, tastefully furnish and decorate the interior, set out fresh bouquets of flowers, and let the buyers stream in.

For additional tips and strategies to sell your property quickly and for top dollar, check out Chapter 18.

When you purchase a property for less than its market value, you automatically have equity in the property. Renovations that bring the property up to its market value may add more equity, assuming that you don’t overspend.

You can cash out the equity by refinancing it for more than you paid for it to realize your profit almost immediately. Keep in mind, however, that by refinancing for more than the purchase price, you take on a larger mortgage, and the increased interest chips away at your total profit over time. Refinancing, however, does provide you capital to fuel your next investment or cover the cost of renovations. For more about refinancing to cash out equity, see Chapter 19.

Selling and refinancing are two of the quickest and most common ways to realize the profit from foreclosures, but other strategies are available:

Negotiate a short sale. With a short sale, you persuade lenders to accept less than they’re owed, which increases equity in the property, providing you creative ways to help the distressed homeowners out of their jam. (See Chapter 15.)

Lease the property to renters other than the previous homeowners. (See Chapter 18.)

Lease the property back to its previous owners. (See Chapter 19.)

Sell the property to the homeowners’ family members. (See Chapter 19.)

Sell your position in the property to another lienholder. If you control the first mortgage, for example, you can sell it at a markup to a construction company that has a lien against the property so that the company can protect its interest in the property; otherwise, it risks losing all the money it’s owed. (See Chapter 19.)

Chapter 2

IN THIS CHAPTER

Brushing up on the differences in how foreclosures are handled

Investigating the early missed-payment pre-foreclosure period

Finding opportunities in the Notice of Default stage

Arriving at the foreclosure auction stage

Waiting out post-foreclosure, from redemption to eviction

A common foreclosure myth is that it’s a one-time event. Homeowners miss a mortgage payment or two, and the lender swoops in and scoops up the property. The fact is that foreclosure is typically a long, drawn-out legal process that begins with missed payments, proceeds through some sort of legal system, and often results in homeowners losing their homes.

An understanding of the foreclosure process reveals the various stages at which you can purchase properties. By knowing what to expect, you can often maximize your opportunities while minimizing costly mistakes.

This chapter provides a road map of the foreclosure process, beginning with a notice to the homeowners and the public of missed mortgage payments and ending with the homeowners relinquishing possession of the property. Anywhere along the way, the homeowners have options to interrupt the process and regain control of the property. I point out these opportunities to help you better assist homeowners in making choices and to warn you about what homeowners can do to derail your plans.

Homeowners find themselves facing foreclosure for any number of reasons, including long-term illness or disability, overspending, substance abuse, divorce, and gambling, to mention only a few. As a real estate investor, you gain nothing by judging people in foreclosure. The best way to approach homeowners in foreclosure is with respect and empathy, offering solutions that enable them to leave the past behind and build a more solid financial future.