| In previous articles, we've discussed buying | | | | repairs and improvements, and other details that will |
| preforeclosures, which means buying the property | | | | affect the value. REO asset managers know that |
| after the foreclosure process has begun but before it's | | | | investors need to buy at below market value; you can |
| completed. If you are unable to prevent the | | | | help them make a decision in your favor by providing |
| foreclosure, the property will go to auction, which is | | | | them with the information they need to justify selling |
| another buying opportunity. If you are unable to buy at | | | | the property at the price you're willing to pay. |
| the auction, you still might be able to get a good deal | | | | Buying from other investors |
| on a foreclosed property after the auction. | | | | One of the challenges of buying at the auction is that |
| There are two ways to buy after the auction. First, if | | | | you must have cash, typically either at the auction or |
| the property doesn't sell at the auction, the lender that | | | | within 24 hours. Some established investors with |
| foreclosed takes possession of it and you have the | | | | sufficient cash reserves have found it lucrative to buy |
| opportunity to negotiate a deal with the lender. Second, | | | | at auction and quick-turn those properties to other |
| many investors who buy at foreclosure auctions do so | | | | investors or end users looking for a bargain. Buying |
| with the intent of reselling quickly to either end users or | | | | from another investor after the auction gives you a |
| other investors. | | | | little more time to get your financing lined up. |
| Taking REOs off the bank's books | | | | Here's an example of how buying from another |
| The common term for foreclosed properties on | | | | investor after the auction might work: The property |
| lenders' books is real estate owned, or REO. These | | | | sells at auction for $125,000. Its current fair market |
| are nonperforming assets that do not reflect positively | | | | value is $140,000 and its after repair value is projected |
| on financial statements. Lenders are often eager to | | | | at $165,000. The cost of repairs is estimated to be |
| unload them, even if they have to take a loss. | | | | $12,000. The at-auction buyer could do the repairs and |
| If you're going to make an offer on an REO property, | | | | sell the property at retail for a $28,000 profit. Or he |
| the best time is to do it very soon after the auction, | | | | could sell the property to another investor for $130,000. |
| before the lender has a chance to list the property | | | | In that situation, the at-auction buyer makes $5,000 on |
| with a real estate agent. Because most of the other | | | | the deal, and the other investor stands to make |
| liens are wiped out at the auction, lenders will often | | | | $23,000 (or potentially more, if he holds the property as |
| take care of any tax liens so that they can provide | | | | a rental). |
| buyers with a clear title. | | | | You can identify this type of investor by attending the |
| How good of a deal you can make depends on a | | | | auctions and paying attention to the bidders who show |
| variety of factors, including the condition of the | | | | up and buy time after time. Introduce yourself, give |
| property, how willing the bank is to work with you, | | | | them a card, and tell them you're interested in buying |
| whether the property has been listed with a real | | | | one of their properties. If you strike a deal, be sure to |
| estate agent (which means commissions have to be | | | | do your due diligence and research any liens that might |
| paid), and how long the lender has been holding the | | | | not have been erased with the foreclosure so that |
| property (if you don't make your offer immediately | | | | you get a clear title on the property. |
| after the auction). | | | | Each phase of the foreclosure |
| Many lenders have departments dedicated to | | | | process--preforeclosure, at the auction, and after the |
| managing their REO properties. This is the department | | | | auction--provides savvy investors with the potential for |
| that will likely review your offer and make a decision to | | | | a profitable deal. The key is to understand the |
| accept it, reject it, or counteroffer. When you put | | | | strategies, apply them effectively, and be willing to |
| together your proposal, include as much information as | | | | walk away from any deal that doesn't meet your |
| possible about the condition of the property, necessary | | | | requirements. |