I want to take a moment to let you guys know that I have closed properties in foreclosure. Still, I’m not an expert on it, but what I can do is to share with you how I approached it when I first was able to purchase the property and help my parents invest in a foreclosure property. At the time, the property was purchased at $450,000, I remember, and today is worth $1.2 million. It’s located in New York.
For those who don’t know, and to bring everyone up to speed, a foreclosure is a legal process by which a lender takes control of a property, evicts the homeowner, and sells the home after a homeowner is unable to make full principal and interest payments on his or her mortgage as stipulated in the contract. Now, if you are a real estate investor, this concept also applies to you. If you default on the mortgage payments, you again run the risk of getting into a foreclosure. There are three stages to a foreclosure process.
Foreclosure Stages
The first one is what I like to call pre-foreclosure. It’s when the investor or the homeowner starts defaulting on a payment. The bank typically allows you, let’s say, about three to six weeks to fix the issue, whatever’s happening in your life, whether you lost a tenant, whether you lost your job. Depending on the bank, it can take up three to six months, and if you don’t correct, what they will do is that they will just simply post your property for sale at the courthouse. Full disclaimer for those who don’t know, banks do not want to foreclose on anybody. They don’t like that.
Banks are in the business to make money, so having a property on foreclosing cost them money. It’s something that they will try to avoid at all costs. If they have the opportunity to work with the homeowner or even with the investors to remediate the situation and help them come up to speed with the payments, they will try to do that at all costs, so so that you know that.
The second stage is the auction process. What happens is, after four to six months, if the bank or the homeowner or the investor per se couldn’t come up with a plan to come up to speed with the payments, they will proceed to the auction sale, and you have to go into the courthouse and make a bid.
If you win the bid at that auction, you have to make a deposit. You have up to 24 to 48 hours or something like that to make the purchase, and that’s when having a hard money lender comes in really, really handy for you. If that doesn’t happen, let’s say people have made the bid or simply no one is interested in bidding in that specific property, it hits the third stage of the foreclosure process, which goes to the REO section on the bank’s website. In a few, I’m going to show you what that tab or what that website looks like, but it’s a listing of all properties that are typically foreclosed on.
Depending on each of the stages of the foreclosure process, purchasing or investing in the property will be either more or less challenging depending on how you want to look at it. During the pre-foreclosure process, when the homeowner or the investor starts defaulting on the payment, the house is typically in good quality. A way to find out how a house is in that pre-foreclosure state is to do drive for dollars, which I’m sure some of you are actually familiar with the term, where you go around neighborhoods. You start taking a look at houses where the grass has grown a little tall, or not so well maintained compared to the rest of the places.
Then that’s a cue for you to like, “All right, maybe either they’re on vacation, and this is a vacation home for them and/or if there are people living in the house, and they might be going through a foreclosure situation where they are starting to default in the payments and sooner or later if they don’t come up to speed with the payments, that’s when they’re going to hit that foreclosure process. That’s when you want to go ahead and send your email marketing or your mail marketing, whatever your marketing strategy is, to try to get them to sell you the house.
Once you get into that second stage, then, in my view, it gets a little bit more challenging because you’re going to have to go to the courts. You have many other people bidding at war versus on that first stage in that pre-foreclosure when you don’t have anyone competing with you at the time. Although all the real estate investors might be competing with you, so I’ll leave that up to you to decide which is more challenging or less challenging for you. Then once you hit that third stage, once it hits the REO website, there’s a lot of repairs that you’re going to have to factor in in your investment.
It’s not just the amount of money that you have to spend on purchasing the property, but how much you have to invest on getting it, either rent ready or flipping it around so you can resell it again. Those are some of the factors that you might want to consider before purchasing a house for an investment once it’s hit the third stage of foreclosure, which is when it’s on the REO list.
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RESOURCES & LINKS MENTIONED IN THIS EPISODE:
– Foreclosure definition: http://bit.ly/2Gs7MOf
– Wells Fargo REO listing: https://reo.wellsfargo.com
– Checking for NYC violations: https://on.nyc.gov/2GlpGCj
– Homepath listings: https://www.homepath.com
– HUD listings: http://bit.ly/2Gnr4V3
– About HUD: http://bit.ly/2GoReHa
– Zillow: https://www.zillow.com
– How to know where to invest: https://youtu.be/0HsWe7kzk3Y
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VIDEOS COMPLEMENTING THIS ONE:
– How is a real estate investor managing her properties in this crisis?: https://youtu.be/36iowp8osqo
– Improve your credit while you maker money: https://youtu.be/eOx82LBo14g
– Fund & Grow your real estate portfolio: https://youtu.be/VV0n1crixUQ
PLAYLIST COMPLEMENTING THIS ONE:
– Investing During The Crisis: https://www.youtube.com/watch?v=sSrOt5IXnMs&list=PLbg0ENts-e2tjHtaG6f7Vb-gJwXzrFsx2
All About Business Credit Playlist: https://www.youtube.com/watch?v=dVtOEoKP8b4&list=PLbg0ENts-e2sznkpSyI-K9-rRcE3JppZh
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