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The area of foreclosures can actually be divided into two, pre-foreclosures
and foreclosures. If you can find properties that are about to
go to foreclosure and work out a sale with the current owners
(the people in arrears) before they do go to foreclosure this
is under the umbrella of pre-foreclosures. If the property is
foreclosed upon and the bank or lending party now has title this
would be considered foreclosures.
Finding Pre-Foreclosures
When someone is entering the foreclosure process a legal
notice is printed in the local paper. You can also look on the
links page for listings of
foreclosures. In the paper it will list the property address and
zip code. Use the reverse address link in the Real
Estate Links page to find the name at that house. Address
a letter to that name or owner of the house at such and such an
address. State in the letter that you can help them out of their
foreclosure in the right circumstance. Tell them that foreclosure
is vastly unfair and how you understand what they are going through
(you've seen it before and helped people... or you know how to
help.) Once you've found a pre-foreclosure, the first thing to
do is to ask about mortgages and liens (you will put in your Real
Estate Offer a subject to title report so any misrepresentation
will get caught). You will also do an inspection to see if there
are any visible repairs needed. You will be bringing in an expert
later but you just want a ballpark now. You can then get comps
from your real estate agent or from one of the value assessor
links on the Real Estate Links
page. You now have all the numbers you need to do an analysis
A Pre-Foreclosure Deal
Let's assume that you came upon a couple having financial
difficulties. They were unable to pay their mortgages for the
last 3 months and had been notified by their lending institution
that they were going to be foreclosed upon. The first thing that
you would do would be to find out how much they owed on their
mortgage(s) and if there were any liens against the house. Also
you would need to know if they NEED any money out of the house.
The second thing that you would do would be to get 5 comparable
house sales in the last 6 months. Your real estate agent on your
Power Team can help you
with that. There are also some house estimator web sites on the
Real Estate Links page. Let's
say you found out the following:
| House Value |
|
$200,000 |
| Mortgage 1 |
$120,000 |
|
| Mortgage 2 |
$15,000 |
|
| Mortgage up to date |
$10,000 |
|
| Moving Costs |
$5,000 |
|
| Total |
$150,000 |
|
| Your equity |
|
$50,000 |
Okay so it looks like your equity is $50,000. If you are going
to rent it out you should check in the Property
Analysis Page to see if this property is going to cash flow
for you. If you are going to sell, you should fill out a form
on the Flipping Properties
page. Let's say that you want to sell this place, lets fill out
a flipping properties sheet to see if it works.
| Purchase Price |
$150,000 |
| Fix Up Cost |
$0 |
| Appraised Value (5 comps or spreadsheet) |
$200,000 |
| Selling Price (95% of appraised value) |
$190,000 |
| Cash Required by you |
|
| Closing Costs 1 |
$3000 |
| Cash at close |
0 |
| Deposit |
$1000 |
| Repair Costs |
|
| Holding and Selling Costs |
$24,000 |
| Total |
$28,000 |
| Purchasing Costs |
|
| Closing Costs 1 |
$3000 |
| Deposit |
$1000 |
| Repair Costs |
$0 |
| Cash on Contract |
|
| Insurance (X6 months) |
$600 |
| Water |
$300 |
| Other |
|
| Management (X6 months) |
$0 |
| Total |
$4,900 |
| Holding and Selling Costs |
|
| Rents (X6 Months) |
$0 |
| Closing Costs 2 |
$2500 |
| Property Taxes (X6 Months) |
$1450 |
| Utilities |
$2500 |
| Sales Commission |
$9,500 |
| Mortgage Payments (X6 months) |
$7,600 |
| Advertising |
0 |
| Lawn Maintenance |
$450 |
| Condo Fees |
$0 |
| Total |
$24,000 |
| Profit or Loss |
|
| Anticipated Selling Price |
$190,000 |
| Minus Purchase Price |
$150,000 |
| Minus Purchasing Cost |
$4,900 |
| Minus Holding and Selling Costs |
$24,000 |
| Net Profit |
$11,100 |
At the end of the day there is a profit of about $10,000. Not
bad considering that you don't have to do any fix up costs and
work. If you can do one of these a month you are laughing.
Finding Foreclosures
Finding foreclosures after they have been taken by the
lender is in some ways easier. A number of government arms foreclose
on homes and you can find their properties on the sites in the
Real Estate Links section.
Different government arms handle their foreclosures in different
ways. To find out more about these different processes contact
an experienced Real Estate agent on your Power
Team.
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