Pre foreclosure deals

[Jacob Cuellar]

Hey everyone, if I'm planning on trying to land a pre foreclosure home to wholesale, would I still use the usual 70% rule to calculate my MAO? Or is there some other formula to get my MAO when dealing with pre foreclosures?

[Jacob Cuellar]

Quote from @Account Closed:

Quote from @Jacob Cuellar:

Hey everyone, if I'm planning on trying to land a pre foreclosure home to wholesale, would I still use the usual 70% rule to calculate my MAO? Or is there some other formula to get my MAO when dealing with pre foreclosures?

 Hi Jacob, I am not experienced wholesaler and in the process of learning the ropes. So, I will share my opinion and leave it for other, more tenured investors, correct me.

This is my understanding: your goal is to get the property at such price and location that it would make sense for investor (your buyer) to purchase from you and do whatever they want to do with it. The product they are looking is the same, sources you can get those properties from are different. You could get them on MLS (I don't believe real investor will buy it from you, because they probably have REA they work with, access to Zillow, Redfin and etc., just doesn't make sense to pay you extra fee to get what is already blasted there for ALL to see). You could get them by directly contacting sellers via your marketing efforts. You could get it from auctions. Or, you could also pull a list of pre-foreclosures, skip-trace, contact sellers and see if you could help them get out of the house with less damage and loss than if their house went through foreclosure.

There are couple of things I would be on alert for and research when you deal with pre-foreclosures. FIRST: check the state laws. In MD we have loss-mitigation laws passed after housing crisis that exposes you to great deal of liability if you contact people 60+ days in default  and offer to buy their homes. Established wholesalers who do this here jump through hoops and approach sellers as if their sole purpose was to help them keep their homes and never mention what they are after until after seller begs them to get rid of their property. Even if you do everything by the book, chances are some home owners will eventually feel angry and resentful at you for taking their house from them and profiting from it, and all they have to do is file complaint with AG. The way AGs generally work is that they don't come after you until years later when you do a lot of those closures. And then they will come after you heavy handed, with full force and charges of defrauding and abusing the vulnerable home owners. You will be lucky if you get away with hefty fines and no jail time. So, talk to investors and ATTORNEYS in your state and find out if hitting home owners in pre-foreclosure is legal and won't bite you later on.

The other thing to be on watchout is if there are liens and encumbrances that will get you stuck , because investors will do their own title search and find out the price you assign the house to them is just a part of a larger bill they have to pay to own it.  While this can be a case with any property, there are just greater chances of it being a problem property with owner in pre-foreclosure. 

So, just do your homework on it. Be wary of dealing with those types of properties and owners. And if all checks out then it might be a viable deal from monetary stand point. I personally won't be doing them here in MD, but some people specialize in acquiring those types of properties and I would strongly suggest you to attend local meet ups and try to speak with someone who had done it successfully and never got burned. May be in Texas it's a good way to make money. Just check it out thoroughly before you get into it. 

Great! Thanks so much for the info!