What Could Be Better than Getting a Good Foreclosure Deal on the Court

Foreclosure sales were the topic of a recent meeting at a local real estate investment association (REIA) meeting in the Dallas/Fort Worth, Texas area. The presenter used the “real-life” example of a single family residence (SFR) with a current market value (CMV) of $80,000, which sold for $55,000 at the foreclosure sale on the courthouse steps.

The presenter explained, quite correctly, that the successful bidder on this deal would be required to pay for the property — in full — immediately following conclusion of the foreclosure auction. The presenter suggested that foreclosure auction bidders go to auctions prepared, with multiple cashier’s checks in various denominations in hand, which they can combine to pay whatever the winning auction bid happens to be when they are the successful bidder.

Okay, you might say, a $25,000 gain on a $55,000 investment, is not too bad.

But wait a minute. Those numbers do not include any expenses that may be incurred in order to obtain an $80,000 sale price, nor do those numbers include the costs of sale (real estate commissions, etc.). A typical sales commission — 6% — would reduce net proceeds by $4,800, which would reduce net profit from $25,000 to $20,200.

If we were to spend $10,200 to get the (now) former owner to move out and to rehab the property so that it would sell for $80,000, our cash-on-cash profit on the deal would still be a little over 18%. Not bad.

But what if there was a better way?

What if this type of property could be obtained for $0.50 or less per $1.00 of CMV?

What if we could dramatically increase the supply of potential inventory by conducting nationwide searches for suitable properties, using less effort than is needed to find scarce properties locally?

What if we could simply execute a wire transfer to pay for our purchase, rather than having to go to the bank, purchase multiple cashier’s checks in various denominations, and then drive downtown to the courthouse?

What if we could use retirement account funds — instead of cash from our regular bank account — to make the purchase?

What if we could make the investment using after-tax dollars in a Roth IRA account, and thereby completely and legally avoid — not simply defer — having to ever pay tax on the gain from this investment?

Those who are in the Note Business — that is, those who are in the business of investing in discounted mortgage notes — all know and understand that each of these “what ifs” are not just theoretically achievable, they are results which are routinely achieved. Disclaimer: No one can guarantee you a particular result; past performance does not guarantee future results; etc., etc. Likewise, no one can — or will — guarantee you a result on the foreclosure deal you purchase at auction on the courthouse steps.

Those in the Note Business routinely purchase assets at extremely deep discounts, their search for assets is not confined to a local geographic area, payments for assets are made using modern technology, and assets can be purchased using retirement account funds, if desired.

Yes, there is a better way.