Due to the recent downturn in our economy defaults on mortgages have gone way, way up!  In some cities there are foreclosures everywhereyou look.  Most of these foreclosures are due to both speculative investor buying and flipping driving the prices up and ARM (Adjustable Rate Mortgages with low initial tease rates) resetting to levels where the homeowner can no longer afford the payments.  Yes, there are other circumstances like deaths, unplanned illness and medical emergencies, etc...  Regardless of how they were caused, this provides a great buying opportunity to investors - you just have to know where to look and find some hungry or motivated real estate agents to take your offers seriously and actually present them! 

The part of finding a decent and motivated real estate agent if you aren't one can not be understated.  I recently found a bunch of great deals near me and wished to place offers on two properties.  I called the original listing realtor Prudential realty and was told the listing agent would be back in the next day or so and help me.  This turned into over 5 weeks of me calling and no one returning my calls.  When I finally got an agent from another realtor (Century 21) that would show me both properties she couldn't take the time to meet me for the first and so gave me the entry code over the phone.  The second house she was over 2 hours late on meeting me.  After seeing the house I told her to put in an offer that I felt was quite reasonable.  I asked her if she was going to write it up as she was walking towards her vehicle.  She just jotted down my information and said she would enter my bid at Firstpreston.com and would call me with the results.  I called the next day to see what the results were, she said she would get back to me the next day with the results and did it in a very unfriendly manner.  2 weeks later she never called again and someone else got the house - I bet she never even submitted my offer.  Per my attorney I have no great recourse against Century 21 without a signed contract as it would be her word against mine - the reason I am telling you about this is that:

1) Always get a signed contract and have a copy for yourself for every bid or offer you want to submit.  If they don't come to show a house with proper paperwork tell them to go get it and meet you right back.  This is for your protection so someone else can't buy it out from under you with a lower offer.

2) Find a good, knowledgable and aggressive realtor that isn't afraid to submit offers that will make you money.  Once you find one, stick with them and maybe buy them lunch every now and then so they will give you first dibs on great deals before they go on the MLS (Multiple Listing Service).

My usual real estate agent and friend had left town permanently due to some big family problem and so I went through atleast 20 agents.  I could not believe that in this slow economy that there were that many agents that were either lazy, didn't care or were just plain terrible.  Oh well, most people would be super hot about this, the reason I'm not is that I know how to find 100 to 1000 more where that one came from. 

 

So you are probably asking me now, "Great, but the article title was about making it big in foreclosures - so how do you do it and where do you find the deals?"  First, infomercials and scammy real estate investment seminars will take your money, promise the world and rarely if ever deliver anything except an outrageous credit card bill for upwards of $5000 or more so avoid them like the plague (read our article on Foreclosuresdaily.com and other possible real estate investment schemes with advice on how to tell if it may be a scam and great links at the FTC to get your money back if you find yourself taken byu a real estae scam).  The rule here is:

If it sounds too good to be ture it almost always is.  And if they are touring the counrty selling these videos, books, boot camps and expensive seminars that means there are thousands of other hopeful investors out there with the same information.  Just ask someone that is currently doing well in investing in real estate what they use.  They will tell you they don't go to these expensive seminars, or buy the tapes and such.  Shoot, some people invest so much in these stupid seminars over the years that they could have easily paid cash for an investment propertyor two and been on their way to a profitable real estate business rather than making some scammy self proclaimed real estate guru rich!

If you haven't read the above article on possible real estate investing scemes please do.  Now that you know what to avoid, lets get to it.  Yes, you can make money with short sales, preforeclosures, bankruptcies and more - but they take a ton of time, everyone else knows about them (regardless what Foreclosuresdaily.com says) and the results are actually low compared to the time and effort involved.  If you hear someone say something like, "Oh, I only put about 4 hours into that short sale and made a quick $13,000."  Use your head.  They are leaving out the fact that that was the first one they have done in 4 months or more and they also excluded the fact that every day they have to post placards, make and send mailings, take phone calls, go and see hundreds of houses where the owner may no longer be, compete with over 1,000+ other prospective short sellers (whom all went to the same short sale, preforeclosure and bankruptcy seminars) for the same deals, call bank mitigation loss departments that do not like investors and many times do not ever return calls or just won't negotiate at all and want full price, and deal with clients that almost never tell the whole story or truth and conveniently leave out vital data.

In my game this is much too much effort for far too little return.  And regardless what companies like Foreclosuresdaily.com state, the odds are you will never even come close.  Now, that we've addressed preforeclosures which are akin to Buy Here Pay Here low budget car sales and can be sketchy and very unsafe to say the least, we will address foreclosure auctions.  You must bring enough cash (certified check or money order) to cover 5 to 10% of the bid price to the auction and you will put this down on any successful bid you make.  Now, it is important that you understand that these county courthouse step auctions have no safety net.  What that means is that they only disclose the foreclosing entity and the amount of their loan, tax lien, etc...  There is no disclosure of other secured loans like second mortgages, tax liens, other mortgages, mechanics liens, etc...  So you need to do what is called your due diligence or else you will be assuming any outstanding debts in full and this could easily make that great deal a complete bummer of a deal.

Due diligence is done by usually paying a title research firm to find all outstanding claims and liens and find out if there is anything wrong with the title.  You also can go to your own county court house and do the research yourself.  You also must learn your state foreclosure rules as some will allow up to 1 year for the foreclosed owner to come back and buy it and if you have done any repairs or work to the house in that time you lose al that you put into it.  So, for beginning real estate investors it is best to avoid the public auctions or atleast go to a few and see how they work first.  Many counties will allow bid upsets which is where you can later after the auction for up to 10 days offer a higher bid and steal it away from the auction buyers.  If your county allows this you have to go to your local courthouse and put down the required 5 to 10% of the new bid price and then the term extends another 10 days and if no one upsets your bid you win.

Basically the foreclosure auctions are not for newbies and being that you can't enter any of the houses and in many cases are buying it sight unseen this can be very periless.  I have found it far better - yes here it comes - to buy what is called REO properties.  REO is a real estate term for Real Estate Owned or Bank owned properties which is what happens to most foreclosures.  These homes are listed by the banks at a discount of normally 5 to 20%, but due to the current economy and in certain high ratio foreclosure areas like California and Arizona can be upwards of 35% or more.  These homes have clear titles as the banks have taken care of any problems and have less worries other than the fact that you are buying the house as is where is.  One additional plus is that they are sold on the MLS like most other houses and you can see the inside and get it inspected prior to purchase. 

These REO properties are still foreclosures and if you take the stance of hold and rent or lease/purchase and stick with a price range and market you know (like the $150k entry range SFR - single family residences or whatever it may be in your area) you will do quite well and soon surpass most of the others that are strugling with their preforeclosure business.  The key here is if you hold and rent your renters will pay off your mortgage for you and put a little cash in your pocket on top of it.  This is the key to the American dream and what Robert Kiyosaki talks about with having others pay your debts for you. 

Good luck with your real estate business and now that I've taken the time to help you, please take the time to help someone else.  It doesn't have to be in the way of real estate - it could be just holding the door for someone or helping someone in need.  If everyone would do this could you imagine what it would be like?  Try and go out of your way and be nice to someone today - that is all I ask in return for my time.  Remember, when you help others you will get back usually ten times more than you give. And, one more thing - if you like our articles and website and have benefited from the thousands of great free tips please link back to us so that others may also benefit and so that we can continue providing this free info.


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