So if you live near any “coastal area” in the country, your real estate market has been HOT, HOT, HOT for the last five years. In fact, many economists are debating whether we are (or are not) in a “real estate bubble” that is about to burst. (Read more about our opinion on this subject in our Foreclosure News Nationwide column “Housing Market Peaks are Shrouded in Cloud”.
But the question still remains… if you believe that real estate is the best investment available, how do you find great deals in such a hot market? Before I answer that question, let me start by discussing how you DON’T find great deals in a hot market and WHY:
#1 No No: Check Properties Available for Sale through the Multiple Listing Service (MLS) and For Sale by Owner Ads (FSBO):
In this hot market, sellers put their house on the market and get multiple offers the same day. Then they counter every one, and whoever gets their counteroffer signed first wins. What a horse race! And absolutely, you will NOT get a good deal when there is many buyers all competing for one property. (Read more about this in our “Foreclosure Buyers: “Self Service” versus “Full Service” Which is Best?” column.
#2 No No: Work REO properties (bank owned or HUD repossessions):
The inventory of Real Estate Owned (REO) by lenders who have already foreclosed or Government Owned (HUD) property is at its lowest level in many years.
Since values have skyrocketed in the last few years, almost all owners have a ton of equity in their homes. That means they can capture that equity by either refinancing their loans (if they can afford it), by selling their house to a homebuyer (list it on the market if they have time), or by selling their property to a smart investor (like yourself) before they lose all their equity at a trustee or sheriff’s sale.
Of the very few (less than 1%) properties that go back to the lender, 99% are fixed up by that lender and sold through a Realtor for full market value. So that “horse race” I mentioned above, is also happening with REO properties. With REO inventories at rock bottom, lenders have no incentive to sell to investors at a discount!
So now you are wondering… How Do I Find My Deals?
To begin, you must know which foreclosure buying strategy to use, based on your current market conditions. (Read more about this in our “What’s the ” Best Way” to Buy a Foreclosure?” column). And in this hot sellers market, you must ONLY work with super motivated sellers who HAVE TO sell (or risk losing their home and all their equity at the foreclosure auction).
You must focus on buying houses from owners in default.
And no matter where you live, in every market there are always property owners in trouble (death, divorce, drugs, alcohol, or unemployment) who cannot hold on to their houses. These owners can and will try to do everything they possible can, to keep their house. (Read more about this in my “Seven Owner in Foreclosure Options” column.)
Some clients ask “Alexis, if the market is so hot, wouldn’t all owners in default just list their house for sale, and get that stampede of offers you speak about?”
Great Question… but let me explain reality.
When you are in default, the first thing you do is try to borrow more money to keep your house. This will take you many phone calls over many weeks. You will hear lenders say “sure we can loan to anyone who has enough equity in their home, no matter what their credit looks like, and no matter if they have the ability to repay the loan.”
But these lenders are not telling you that the new anti-predatory lending laws enacted by many states prohibit them from giving you a loan that you cannot repay (i.e. you have insufficient income to qualify for the payment to income ratio required). (Read more about this in “Predators and Fraudsters” column.)
Therefore these lenders are essentially not telling you that you will not be able to get a loan. So the owners hang in limbo, hoping to get a new loan and using up precious time before the auction. (This time line varies from state to state. Learn how your state’s foreclosure law works here.)
Plus, did you know that if you have a loan application out, you cannot put your home on the market? That is correct. If you do, the lenders will cancel your application unless you pull your house off the market.
So, exactly when does an owner in default decide to sell?
You’ve got it… when it’s too late.
By the time they have found that they can’t get a loan, they have no time to clean it up and list it on the market. Currently (in my area) it takes about 2 weeks to sell and another 4 weeks to fund the new loan and close (there are usually many contingencies such as appraisal, buyers’ credit approval, title report, loan underwriting, inspections, etc.) if all goes well.
Do you think that owners in default decide to sell at least 6 weeks before the auction? They don’t… They decide to finally sell a week or two (oftentimes just a few days) before the date of the foreclosure auction.
But when they do decide to sell, they ONLY want to work with the empathetic, helpful, ethical investor who has been helping them explore their options since the beginning of the foreclosure. The investors who prey upon homeowners in financial distress and wait until the end to try and virtually steal the home will find themselves shut out (thank goodness!).
Why? Because they would rather work with an investor who has earned their TRUST by showing them that the owners needs come first (helping them find ways to help them solve their problem). Now, they are willing to talk to you and only you about selling. And this takes time, patience, great people skills and a perfect follow-up system.
All of these skills and more, we can help you learn. But you must first start with a great source of pre-foreclosure leads (Click Here to get Setup).
Then take the time to complete our “Six Steps to Mastering Foreclosures” home study CD program now…. So you can learn what to do, in what order to do it, and exactly how to do it no matter where you live. We’ve had so many clients rave about their own successes, that we know the information we provide is working! Read for yourself HERE (most recent letters at the top).
Until next month,
Happy Investing!
Alexis
