Wholesaling Pre-Foreclosures

[Laura Johnson-Morris]

Hi all!

I have a direct mail campaign out to homeowners in pre-foreclosure, but I'm finding that even when homeowners do have some equity in the property, it still doesn't help the homeowner if I offer 65 or 70% of market value in cash.

One example - I just heard from a homeowner with a house in pre-foreclosure worth about $320,000 (based on my comps). The homeowners owe $266,000. If I offer 65% of market value (~$208,000), they would still need to bring almost $60,000 to closing, which they can't do.

So, my questions are:
1) Does anyone know of strategies that would work in this type of situation? (owner financing options, subject to, etc?)

2) Are any investors buying properties that are a certain dollar amount under market value (ex. $50,000 or more under market value) instead of a percentage (30% or more) under market value?

Would love to hear your thoughts - thanks!
Laura

[Jerry Puckett]

Laura Johnson-Morris;
The only way you'll get an investor interested is if the P.I.T.I. is significantly less than what the market rent is. If your tired landlords of this home are going into foreclosure, then I doubt the property will cash flow.

Here are the basics to selling this house quickly:

1. Show the owners that sub 2 is their best option (for more on how to accomplish that, follow the link in my signature to my website, and hit the Real Estate Info tab. Bear in mind here that the motivator is speed, because they do in fact have enough equity to list).

2. Get the house under contract with owner financing terms. This is the place to disclose, disclose, disclose. Tell them about the due on sale clause. Tell them you cannot guarantee the buyers will make their payments. Tell them that even though the loan is still in their name, they are not landlords and have no rights whatsoever. They need to know all of these things, and you need a signed and notarized copy of the disclosure so they cant accuse you of misleading them later on.

3. Find an Investor friendly Title company who is familiar with sub 2. Tell them what you're about to do, and ask about all the documentation needed. This is key, a vital player on your team. (Do this step anyway, even if you don't get this house...you never know)

4. Go buy a dozen of those cheap little blank yard signs (the ones with the wire H frame work fine), a big fat tipped sharpie, and a lock box. Write:

"House for sale
Owner Financed!
Call 555-555-5555"

Put one in the yard, and a few at intersections around the neighborhood. Your phone is going to ring off the hook. I set up a separate Google voice number, and recorded a greeting that gave the address, price and terms, etc. Vet them as carefully as you can. Show the house to the likeliest candidates. ( since you have a lock box, their name and number, you don't have to go every time to showings.)

5. When you've found and qualified your buyer, take a good chunk as a non refundable deposit, and assign the contract. Collect the rest of the down payment at closing. You will need to decide what you will take as a down. I'd say ask for 10%. You need to make sure it's enough to ensure they're serious.

As I said, these are the basics. It's a very easy thing to do, but not simple; there are too many details. But just like "normal" wholesaling, once you've done one deal, all the confusion will fade, and you'll be left with a new tool in your kit.