how to tell if a preforeclosure is worth pursuing

Question

I've been reading up a bit about preforeclosures and the possibility of wholesaling them. I have a database that sends me a list of preforeclosures anywhere in the US. Just today, there are 27 preforeclosures in a zipcode I am interested in. 
So I've learned that just because it's a foreclosure/preforeclosure, doesn't mean it's a good deal. I've also read that the good ones should have atleast 60% of ARV in equity. So just looking at these lists, how can you tell which ones are worth following up on? Do you call all 27 to find out and knock on 27 doors? Please advise!!!!

Kevin Kinton · Answer

Be prepared for a frustrating negotiation with the lender if you pursue a short sale, the lenders often take forever to conclude the sale......

Account Closed · Answer

Find deals where you can short sale. Find end buyer first to have your exit stargey.
20% of BPO value. Check CIS.
Pick out proerty that do not need work. Why do you want to put money back into property.

Account Closed · Answer

Of course these people are in a heightened state of mind, and can be potentially hostile, so I would be careful about just showing up at their door. Also, sometimes, probably rarely, the wife is not aware the house is in foreclosure proceedings - wouldn't want to walk into that!

But usually, depending on where in the process you are entering their lives, they could be resigned to the inevitable, but are not sure what to do next. Some have tried to sell it already, some are knowledgeable, some are clueless of the process. I find that if I know the process really well, then I can at least explain it to them, and they feel more at ease then.

So, if you are just calling them from your list, you won't know what stage they are in, so I would just call, introduce yourself,  and say that you are a real estate investor, and would like to consider buying their house. Simple as that. If they hate investors it means someone has been too pushy and they think all investors are like this. If you are cool and just come across as an informed investor, then you could be a solution to them and they will help you, hoping you will in fact buy their home.

I always ask them what they would most like to see happen, and then they will tell me if they want to just move on, or of they would rather stay if there is a way. You want the ones who are resigned and want to move on with their lives. You then have the solution for them, let you buy the house with any method you think works for the situation - short sale, subject to, new financing, whatever. They will probably cooperate with you.

As far as questions, ask:

How many payments is the house behind and for how much?
How much do they owe (first and second loans, liens, etc.)
What kind of loans are they (HELOC, ARM, fixed, etc.)
How much do they think the house is worth (they'll tell you the tax assessment or what it was worth a few years ago, which is just anecdotal info)
What repairs are needed?

You will be able to get an idea of whether you want to contiinue. You can always delay your decision by saying you need to do some more research on their home and see if it is one you can buy, and will get back to them. then you can run your numbers and se it it works for you. 
Good luck, Mike

Account Closed · Answer

Thanks Mike! What type of questions can I ask them in order to find out whether or not it's worth it? I guess you can say I'm afraid of offending them.

Account Closed · Answer

Hey Katrina,
You are correct that they are not all good deals. In my area for instance, 
most of the leads I get from preforeclosures are homeowners who are either upside down, due to getting second liens or HELOCs, and also the market value of their home went down as much as 20%. So, they are pretty much just short sale opportunities. If they have equity, I can wholesale or pay the back payments and take the eded subject to.

Alot of the wholesaling gurus act like there is this huge equity potential to grab and wholesale the deal to other investors. Maybe this exists in some areas. You could check into the tax assessors website of your county (See the link at the left side of the BiggerPockets home page) and get somewhat of an idea as to the tax value and in some cass what they paid originally. Otherwise you may have to call them with a short list of qualifying questions to screen out the ones you can't work with. Good luck, Mike