Possible home run on my first deal?

Question

Hello BiggerPockets fam, it’s me, again.

Back with another prospective deal. Are you ready for the details?

Okay, this one is in my own backyard of Winchester, VA. My realtor sent me a home in possible pre-foreclosure this afternoon. This is a 3 bedroom

, 1 bath, 904 sq feet clearly distressed property. It is showing a price of 120,000. I have done my own comps of everything that has sold in the last two years within a two mile radius. This is what I based my after repair value on of 170,000. I have already run the numbers using the BiggerPockets calculator and the equity as well as the cash flow are solid numbers.

I plan on writing a letter to the owner:

Dear _____,

Let me start by introducing myself — my name is Thomas Baylor. I am writing you today because I would like to make you a cash offer on buying your home.

I have lived in Winchester my entire life, I love it. I have walked through the hallways of Quarles, Daniel Morgan, and Handley. This is my home. My goal is to buy properties just like yours and invest in our community. If you are interested please give me a call or email any time of the day. Thank you for your time.

Cell —

Email —

Kind Regards

Thomas Baylor Jr.

Any insight from my BiggerPockets family would be greatly appreciated.

Also, I have a number that I wouldn’t go over as far as my offer, but would I have to pay what the owner owes to the bank before the property would be mine?

Dan H. · Answer

I am not a realtor and I have closed transactions without a realtor. However, if a realtor sent me the info that results in an offer, I would use the realtor, maybe negotiating less than the realtor would receive if this was an MLS listed property. The realtor is likely expecting some form of compensation for providing you the information if the information results in a purchase. If the realtor does not receive any compensation, what is their incentive for providing you similar leads in the future?Like many things, RE benefits from relationships and networking. I would price in some compensation to the realtor that provided the information that leads to the purchase.Good luck.

Jon Schwartz · Answer

@Thomas Baylor, sounds exciting!A couple of ideas for you:- In running comps, it’s best to look at just the last six months if you can. I’m not familiar with Winchester, but it was possibly a very different market two years ago!- I like your personal letter, but having written and received many, my critique is that it needs to be all about the seller, not you. Mention that you’re born and raised Winchester, but then quickly point out that you’re excited to make a cash offer so that the seller (and you) can quickly get to the next chapter of your lives. Make it clear that you’re solving a problem.- The loan to the bank must be paid off for you to take ownership of the property (unless you do a sandwich loan, but I’m no pro in that department). However, depending on how desperate the seller is, the seller could help pay it off. For example, if $100K is due and your offer is $95K, it might be worth it to the seller to make up the $5K difference. In this case, though, given that the seller is in default, I doubt he/she has a few gran lying around.Best of luck!

Chris Majors · Answer

A house listing in "pre-foreclosure" is a VERY weak lead.. Go to auction.com and find them all day at great prices. That doesn't mean you can actually buy them. An agent is NOT going to be able to help you with that process either unless they will go through all of the legwork of contacting the seller and negotiating a deal on your behalf. I honestly don't see that happening unless you pay them a healthy retainer. Dealing with pre-foreclosure sellers is a tough gig as a principal, I def wouldn't do it for a client.There will likely be some heated competition, but I recommend knocking on the sellers' doors or calling/texting them and asking if they want to sell the home to you. Don't tell them you know they're getting foreclosed on, just try and start a conversation. Most will be pissy and tell you they're not interested. You may get lucky...

Thomas Baylor · Answer

@Dan HeuscheleI understand what you are saying.However, I have sent her a few clients who have bought very recently. That is the reason I do not believe she is expecting compensation although if this lead pans out I am more than willing to give it to her. This is the type of relationship we have built where I have helped her and she has helped me.

Darius Ogloza · Answer

I have bid on a few foreclosures over the years and have come close but no I have not closed one. Check out auction.com and hubzu.com. Lots of info there as well as potential buys. Zillow also lets you know if and when a notice of default has issued on a property - that is what typically starts the process (in states like mine where the deed of trust is commonly used; in mortgage states you look for a lis pendens filing). In my market, very few foreclosures come up and when they do you need a hazmat suit to go inside.

Thomas Baylor · Answer

@Darius OglozaThat's what I was thinking, it can't hurt to let the seller know the I'm interested especially if they are going to lose their home. I've been researching pre foreclosures through BP and I noticed you aren't able to read the articles that would give me more understanding.It's a little frustrating but there's more ways to educate on the subject. Have you bought a home that was foreclosed? If so, what is the process like? How do you know when they are having an auction?You are spot on about sellers sometimes thinking their property is worth more than it is. I was one of those people, until I was introduced to investing.

Darius Ogloza · Answer

Got it. I was under the impression the property was listed on the MLS. No harm in letting the seller know you are out there. Good luck! Keep in mind that many sellers who are not experienced investors have an inflated view of what their property is worth.

Thomas Baylor · Answer

@Darius OglozaGood questions, this property is not listed yet. It pops up as a “most likely to list.” They may be behind on the mortgage or circumstances I am not aware of. The letter is simply to let them know I am interested in buying their home and to hopefully get some more information/see what is owed to the bank.That’s all, I was just trying to get a head start before the bank takes this property over or it goes to auction. I chose not to make an offer through the realtor because this property has not hit the market yet. Any recommendations would be greatly appreciated. I am still new, still learning. Especially with this pre-foreclosure process is a little tricky.

Darius Ogloza · Answer

Are you considering timing in making your offer? How long has the property been listed? What is the number of average days on market for comparable properties? If the property has just hit the MLS, the likelihood of the seller's accepting a low unsolicited offer is pretty remote. Also, curious if your realtor brought you this lead, why are you not making the offer through him or her?

Thomas Baylor · Answer

@Kris L.The property is not for sale yet. She does not represent anyone. I have dealt with her a few times, explained my criteria and she sent me a prospective property that may be foreclosed on eventually.