You are a real estate investor. Your goal is to buy a few houses in your neighborhood, at the best price possible. So you target foreclosures, right?
First you will need to find a local foreclosure listing service (such as Foreclosures.com). Most large cities have them. This will save a lot of time.
Then comes the “weeding” process. You are weeding to keep only those leads with “equity”. Equity is the difference between the fair market value of the property and it’s total secured debt (loans and liens). The more equity you find, the more profits for you!
Here is my simple “4 step” Weeding Process:
- I start first by property zip code. I suggest you start with where you live and then go out about 10 miles. In my area, that gives me about 7 zip codes and keeps me very busy. You will have to do some testing at first, to determine what zip codes you want to work to get the volume of deals you are seeking.
- Next, you’ll need to weed out anything that is NOT one to four units residential. I keep single-family homes, duplexes, triplexes, quadplexes, town homes and condominiums.
- Then you’ll need to determine your target resale value range. I would suggest you stay close to the median price (you can find median price ranges here). In my area my resale value range is $200,000-$300,000.Stay away from the “low end” resale homes, as they tend to be costly during renovation (items simply walk out the door when you are not looking). Also stay away from the “high end”, as if you don’t sell them quickly, the carrying costs will kill you.
- Finally, I look for equity by comparing the “resale value” to the “loan in foreclosure”. As a Foreclosures.com Member, this is an easy task. I simply click on the “market valuation range” link listed on (almost) every new foreclosure lead. I copy and paste the “top value” of the range on to my foreclosure lead, and then using my calculator, I figure what the “loan to value” percent is for this deal. Anything 70% or less, is a KEEPER!
| Related Links
Ø Current Pre-Foreclosure Lists (AZ, CA, IL, NY, NJ only)Ø Free SAMPLE Pre-Foreclosure Lists (AZ, CA, IL, NY, NJ only) Ø “Buy Wholesale Houses for Profit” |
For example:
- The Market Valuation Range is $230,000-$270,000.
- I take $270,000 as my resale value. (I take the high end of the range, as my house will be totally fixed up and sold 3-4 months down the road. I will most likely get MORE than this top end range. Remember, this is just a “quick value” NOT the actual resale value when I sell it.)
- I divide the $270,000 resale value into the loan in default. In this case, the loan is $170,000.
- This is a 63% LTV (Loan to Value) deal. It is less than 70%. It is a keeper!
Okay, now you know how I “Weed my Leads”. Your next question should be “what do I do now?”
My answer for now is to NOT simply send out a “Mailer”.
Instead –Â GET ON THE PHONE!
Stay tuned for my next month’s column, which will give you insight into my phone and marketing campaigns.
Until then & Happy Investing!
