Approaching Pre Foreclosures

[Alderio Burton]

Anyone out there have any advice or approach that could help me tackle my first pre foreclosure transaction? Pretty new to the field but I'm in the process of obtaining my realtors license and thought this would be a good avenue to test the waters b/c not much capital would be required to start. Any tips or ideas would be greatly appreciated.

[Robert Smith]

For one, auction.com lets everyone in the world (literally) know when something goes up for sale. It used to be that only the diligent and prudent knew when something was coming up and where to be (hard work pays off kind of thing). Sort of like my complaint with the god awful TV shows that make it look so easy and that we are all making 100K in 5 days per home. It drives the prices up and before these larger auction companies came on the scene we were able to work closer and easier with the lender to put deals together. They should not have made the loan in 80% of the bad loans coming up for auction and when our cost goes up the overall price of a home goes up putting a lot of the lower priced owner occupant buyers out of the market on a resale. Everyone has their own formula but most of them come back to the MAO (Max Allowable Offer) formula. When looking at any deal, depending on your exit, you have generally the same numbers. My max allowable offer for a home usually looks something like ARV-cost to sale-repairs-profit=max offer. Cost to sale generally is about 11% of the resale price when you figure commissions (6%), buyers closing cost (3%), your own closing cost (1%), and misc repairs and home warranty (1%). Plan for the worst and hope for the best. Some investors are happy with 10 - 15K in profit however most are looking for more. If you have an unplanned AC unit go out there goes half your profit if you are only planning to make 10K. Repairs always cost more so go ahead and add another 10% to any number that you come up with, and by you come up with I mean 3 quotes from 3 different repair companies. Don't use fly by night fixit men, go with a trusted team in the area who won't bankrupt and rob you blind. Just because a home is off the market may not guarantee equity, trust your numbers and formula and don't do a deal just for deal sake. Talk to friends, family, print up and hand out we buy houses cards to everyone you know. A deal will come if you are putting it out there but it takes work. Watch the news paper and read these forums on how to find deals. There are many different ways to purchase a home and many ways to find sellers. I may even look at finding a wholesaler in the area who is willing to work with you. No reserves and needing financing does put you in a position that you may have to pay slightly more then someone paying cash but that does not mean you have to take any deal presented. Take emotion out of it, this is a business like everything else. Good luck, let me know how it goes and keep educating yourself.