How to Make Money Finding Foreclosures for Investors

With more than 10 million forelclosures projected between 2007 and 2011, it's no wonder so many investors are jumping at the chance to snatch up some of the great deals now availale in real estate. The problem is, that many of them don't have the time to find their next invetsment property themselves. That's opening up a whole new industry: real estate owned (REO) sales.

Instructions

Tapping Into the REO Market

1. Understand how REO investment works. When a bank forecloses on a house, the house is sold at auction to the highest bidder. The problem is, in most states, the auctioneer is required to start the bidding at the amount still owed on the mortgage, plus fees. With property values plummeting in almost every region across the nation and so many homeowners finding themselves in upside down mortgages (owing more on their home loan than the house is actually worth), many of these auction sales are failing to raise high enough bids to actually sell the properties being offered.

   When this happens, the bank holding the mortgage becomes the new owner; thus making the property real estate owned (REO). Now, it's up to the bank to find a buyer. With thousands of dollars already invested in foreclosure fees, and mounting carrying costs (taxes, insurances, and upkeep), being spent every month to hold onto these forelcosure properties, the bank suddenly becomes very motivated to unload this foreclosure inventory. This is great news for the investor who can often snatch a property for 60 or 70% less than its current market value.

2. Find properties for investors. Although there are good buys to be had on the pre-foreclosure and auction circuit, the safest way to find quality investment properties for your clients is through a lender's REO sales department. Unlike auction sales which do not permit property inspections or price negotaitionas, REO sales permit both.

   Real Estate Owned sales work much like traditional sales, allowing the buyer to have standard inspections done on the property; the title is cleared through a title company and even some minor repairs can be requested to seal the sale. Depending on the circumstances, you may even be able to negotiate a lower sales price -- something your investor will appreciate.

3. Buy bulk REO packages. Another way to make even more money finding foreclosure properties for investors is to purchase bulk packages of properties from the bank. Since the bank and their sales force will be the ones to compile the package, they'll likely include some great properties, a few modest ones and even a couple that they can't seem to unload anywhere else. True, getting stuck with a few deadbeat properties doesn't make a lot of investment sense on the surface, but if it means getting ahold of a few great properties at even deeper discounts, it just may be worth the risk. Let's say that your package incudes three fantastic houses in great neighborhoods that need little (if any) repairs; two modestly priced houses in middle income neighborhoods; and two properties that basically need to be torn down in the worst area of town, for the low-low price of $450,000. Now, if your investor can sell the first three properties for $250,000 each and the second two for $150,000 each , the odds are it's worth her time and money to buy the other two within the discounted package and tear them down and donate the land to the local parks and recreation department for a tax write-off.

   Lenders need to get REO inventory off their books as soon as possible, making them more anxious than ever to strike a deal with an investor willing to take a bulk package off their hands.

4. Make more profits by renting REO investments until the market rebounds. The days of a quick house flip seem to be over. Today's real estate investors must be prepared for the long haul as they wait out the current housing crisis for more profits in the future. So, how should you be convincing your investor clients to purchase these foreclosure properties when the odds of making a profit anytime soon is slim? Let them hire you to handle the rental and upkeep of their investments until the market rebounds. Once housing prices begin to go up, you can act as the project's manager, first handling any repairs and renovations needed and then handling the advertising and sale of the property. In the meantime, you both make money on the rental income.

5. Flipping foreclosures for profits. While house flipping may not have the lure of big bucks it did just a few years ago, there is still some profit to be made, if you can find quality foreclosures at deep discounts. Today's foreclosures often are well-maintained and higher end houses in good neighborhoods, leaving a lot of room for resale profits. There are always buyers out there. Right now there are just more homes for sale than people willing and able to purchase them. However, if you can find foreclosures that attract buyers, your investor can make a quicker profit than holding onto them for months or even years.

Tips & Warnings

• There are a lot of ways to find forelcosed properties for your clients to invest in. Here are just a few: A real estate attorney specializing in foreclosures and bankruptcies can often provide a link between the people who need to sell their homes right now and investors wiling to buy them. The local grapevine can also be a good place to find potential foreclosurse. Friends and neighbors are often more than willing to tell you about the couple getting ready to lose their home to foreclosure. Foreclosure notices must be posted in area newspapers.

• Buying foreclosed properties does offer some risks. For instance, some properties purchased at auction do not have a clear title, making the new owners repsonsible for paying past liens, and many foreclosed properties need extensive repair, having been left to deteriorate due to the owner's financial difficulties.