Foreclosure Forecast Newsletter

Over the last few years, the wealth created by real estate has been unbelievable. So many investors have made easy money. Most paid full market value for their property and simply sat back and waited for the market to go up. Everybody boasted how rich real estate has made them.

But today’s market is not the same – there has been a change. Read more here: Nationwide News “Bye, Bye Bubble” to learn more.

Now, you must BUY RIGHT to lock in your profit at your purchase.

To wait (and hope) for home prices to go up will, in this market, prove to be financial suicide. Many investors who don’t understand this will be washed out of the real estate market in 2006. I last saw this happen in the early 1990’s, during that price correction. I got better at buying houses cheaper, while my competition ran after their next “easy money” opportunity (e.g. the Nasdaq). And you know what happened to them after that….

But most new investors really don’t know what to pay for a foreclosure property. They think if it’s in foreclosure, I’ll just give the seller as little as I can (like just moving money) and take over their loans, right? WRONG! You must know how to structure win-win deals to give your sellers the MOST you can! That way they say YES to your offer and you get to buy more houses and make more money!

So where do you start?

My offer formula is really simple. Just like in any business, I first determine the resale value of my product. Then I deduct my costs (buy, fix, hold and sell) and my profit. What is left is what I can pay for the house. Next, your price needs to meet the sellers’ needs (his cash at close of escrow) so you have a win-win deal. Plus the seller needs to have enough equity (existing loans and liens must be substantially less than what you want to pay for his house), so you can do the deal.

(All of these issues (and more) are covered in detail in my new “2006: Six Steps to Mastering Foreclosures” CD home study course. Of course I will highlight the basics now in this 3 part series….)

So how do you determine the resale value?

On your ForeclosureS.com property list , we often provide on your 2 line property listing a “market value” amount (and on your full property description, you’ll view a “market value range” amount for each foreclosure listing). Those market values are derived from the last 2 years sales in your neighborhood. In a “hot” market (where values are going up) your market value amount listed can be much lower than current values. Conversely in “cold” markets (where values are dropping) your market value amount listed will much higher than current market values.

So you must NOT bank on any average market value numbers! They are strictly starting point, guidance numbers for you to use while “weeding your leads”. Read more here: “Weeding Your Leads Has Never Been Easier!”

When you are about to write an offer, you need to know EXACTLY what you can sell your house for. Estimated market values will not be enough. You will need an appraisal of the future value of the property. But you won’t have the time (or money) to hire it out. You must learn to do your own appraisals!

To begin, put on your rosey glasses. Picture your foreclosure house with all the repairs completed (new paint, flooring, updated kitchen and bathrooms, clean landscaping, etc). What is that fixed up house worth? That is where you start.

You will need to subscribe to a fee-based database to gain access to current comparable sales (this is the same data source that appraisers use).

I use SiteXData.com by Fidelity National Data Services (FNDS)
(To Learn WHY, Read Here)

Sitexdata provides a user-friendly, affordable Internet program for the most up-to-date, accurate county real estate data to make your job easier. FNDS information is compiled directly from the County Recorder and Assessor offices throughout the USA. (Click here to see the Sitexdata Coverage area. If Sitexdata is not in your area, here are some additional comparable services available

Sitexdata is updated daily and available 24/7 online. You will have access to the most current and comprehensive real property research and marketing information available. Full report includes: Profile on Subject property, history, comparables, map, etc. Expect to pay about $125/month to get 150 property reports per month.

It takes about 2 weeks to get set up, so don’t wait. (You’ll need to sign a contract, install their software and go through a free tutorial. But it is very easy to use!) For a FREE Test Account and More Information, please contact Carolyn Covington directly Carolyn.Covington@fnf.com and reference Foreclosures.com.

Once you are all set up, you will start by searching for all houses that have sold within ¼ mile radius (you can go out as far as 1 mile if needed) and sold in the last 3-6 months. These sold houses must be similar in size, age and style to the house you are appraising. Do not use “fixer comparables” with low market values. You are seeking what the MOST you can get for your house in top condition (what your house will look like AFTER repairs).

Then check your local MLS (Multiple Listing Service using Realtor.com, Metrolist.com, etc) for all actives (on the market) and pending sales (on the market and in escrow) with the same criteria, to see what your current competition is doing.

Next, take your best comparables from the above data (solds, pending sales and actives) and drive by them. Eliminate any comparables that you cannot replicate. Your remaining comparables will give you your resale price range. Of course until you’ve actually completed the rehab and re-checked your competition before you put it on the market, you will not know for sure what your property is really worth. But you will be much closer to reality than you were when you started!

The key is for you to minimize surprises and have your price projections come in as close to your actual numbers as possible. Remember, without direct access to Foreclosures.com and Sitexdata, you will be working in the dark (and be quickly out of business). These are both essential tools for all real estate investors who plan to make their money when they BUY the house – so you can make profits in hot OR IN COLD markets!

Now that you have the resale value of your house — it’s time to calculate your costs. Stay tuned for next month’s column “Setting Your Offer Price (making money when you BUY the house) Part 2 of 3:What’s Does it Really Cost?“

Here’s to making 2006 our Best Year Ever!