3 Stages to buying Pre-foreclosures
There are 3 stages to buying pre-foreclosures. These three stages, analyzing, hunting and convincing, are accomplished for the purpose of achieving one goal. That goal is to find an owner with sufficient equity, who is willing to sell his property before the auction and convince him to sell. Even those most dedicated to their task will may not be able to purchase every property analyzed for the auction. As disappointing as this is to one who has arduously toiled to come home victorious, it must be remembered that success is not achieved by processes of certainty. To be successful calculated risks have to be tolerated. The objective is not to buy every property analyzed but to buy enough properties to make the venture profitable. If enough time is spent you will be successful in the purchase of not one but several properties by this method. It is important to note that the 3 stages we are talking about today are for investors who wish to purchase a property for the long term or resale it for a profit. These stages could be used for short sales or loan modification programs with a few adjustments, but we will not specifically address those in this article.
Analyzing
The properties at the auction will not all be bargains. In fact, many will not be worth the time required to inspect them. Your objective is to discard these low value properties quickly. This can be done only with the aid of a quick, but thorough analysis. The most frequent problem you will incur is the lack of sufficient equity in a property. Loan to value is thus the vital first calculation in your analysis. I you are using a good foreclosure service identifying properties with a low loan to value relationship should be easy. If you are not then you will need to first calculate the approximate value of the property. This can be done with the aid of comparable sales which are available from many sources. Once this is accomplished you will need to calculate the loan balance of the property. This is done by estimating the loan payments and then deducting the principal payments to arrive at an approximate loan balance. To do this you will need a calculator that can do present value calculations. Once you have arrived at the approximate loan value you should add about 6-8 months of back payments. This is about how long it takes the bank to foreclose on a property.
Hunting
Your second challenge is to find the distressed owners within a short period of time so as to allow yourself sufficient time for negotiation and acceptance of your offer. This is not an easy task by any means. When a deed of trust is the security devise being foreclosed often you will have only a period of a few weeks to accomplish all three stages. In Texas you will only have 3 weeks notice of foreclosure for most properties. Only by intense dedication to the task and superior selectivity can this be accomplished in the time required. In this situation use the first resources available. This, in most cases, will be the initial foreclosure posting, which can be obtained at the courthouse and can be difficult to read. This is where a good foreclosure service will save you many hours of research. It should be noted that not all foreclosure services get the foreclosure directly from the courthouse and update immediately. Any delay in this process will cost you valuable time. So be sure the foreclosure service you choose gets the notices from the courthouse and updates immediately.
Once you have identified properties with high equity, you will need to contact the owners. The easiest way to do this is to mail them and let them contact you. There are 3 options for mailing. One is to send a postcard. This method is inexpensive because the postage is lower. Postcards will necessarily be seen. The responses are usually lower, but the callers will be serious sellers. Another method is to send a sales letter. This will get a higher response but the callers will not be as serious. The last method is to use a check letter. This means sending a non-negotiable check to the owners. This method will generate a lot of response but an even smaller percentage will be serious sellers.
Convincing
The next essential ingredient to profitability is the current owner’s willingness to cooperate. It may seem unlikely that an owner would not cooperate given the owner’s situation, but it is actually far from it. Distressed people have a tendency to behave irrationally. Many have an undying optimism that their problem will be solved in a last minute miracle, which will render them financially sound. Sometimes the miracle happens. Sometimes it does not. Your next challenge then is to convince the owner of the gravity of his situation. This you do for his own benefit as well as yours. The biggest obstacle you will need to overcome is denial. Many homeowners believe that someone will help them solve the problem. One way to overcome this obstacle is to convince the homeowner that it is a good idea to have a backup plan. You will be the essential ingredient in this back up plan. If his 1st option goes though that is good, but if it doesn’t you will be prepared to purchase the property. Tell the homeowner that time is needed for you to purchase the property. Try to get him to sign a contingency contract. This is an earnest money contract that allows him an out, if his first option comes though. After this is signed you can start your due diligence and be prepared to purchase the property if the owner fails to resolve the problem.
For more information on this subject please visit the Foreclosure Investment Weblog at http://alamofc.com/blog
David Josh has been investing in Real Estate since 1992. He is the owner of Alamo Foreclosure Service in Dallas, Texas. Alamo Foreclosure Service provides pre-foreclosure and post-foreclosure listings for the Dallas/Ft. Worth area online at Alamo Foreclosure Service For other articles on buying foreclosures go to Foreclosure Investment Weblog Article Source:http://www.articlesbase.com/business-opportunities-articles/3-stages-to-buying-preforeclosures-1785740.html