If you’re going to invest in today’s market or any market you must understand the conditions of the market you’re in. My team has found, in the current market, the best results in bank owned foreclosures. Not to say this is the only way, or the best way to make money with real estate investing today. These foreclosures usually need fix up and therefore we get them at very low prices from the bank because no one else wants them.
I have not had good success in “short sales” or pre-foreclosures” due to what I refer to as “The Creature” or more commonly know as the Federal Reserve Bank. The reason I believe banks are not willing to short sale the notes very low before the foreclosure is because they are still leveraging those notes. Yes, banks are are enabled by their Federal Reserve Charter to count their promissory notes as cash in their accounts and go borrow more money based on how many promissory notes they keep on their accounts. When you think about this and understand it, it’s like a paradigm shift in your thinking and the light bulb comes on in your brain. If the banks make more money by borrowing against what we call a liability and they call it an asset that explains a lot.
So, when you dealing with banks and foreclosures you want to make your offer after they have leveraged the heck out of that promissory note (the bank asset) and now want to dump what we call the asset (the real estate). You can get help finding these through your local MLS or start calling on banks and develop a relationship with their REO department. When you find these and start negotiating with the banks is when you will start getting major discounts of 40%-60% off the retail values of these properties. Like any business it does require work but it can be very profitable.
As an example, my team recently purchased an FHA foreclosure in the Denver, Colorado market for about 35% of it’s retail value because the previous owner had started the remodeling then ran out of cash. So, this was a 3 bedroom home with a brand new furnace, new wiring, new pluming and a completely redesigned interior but it was not habitable. All we had to do was finish was was already started. We sold that property for $115,000 a few months after purchasing it in a slow market. There was a very nice profit on that one.
However, if you want to succeed in this market you must have a good team, be very flexible and most importantly have “multiple exit strategies”. Know and learn these strategies such as fix and flip, fix and hold, wrap around deeds, equity sharing, lease with option to buy, etc. If you don’t know these terms then you either need to learn them or DON’T invest in real estate. Educate yourself first so you don’t wind up with a horror story of your own like the ones we have all heard of.
Happy investing and have a blessed day.
About the Author: Jerry has been a real estate investor since 1981, purchased and sold 100’s of properties. His experience includes fix and flips, foreclosures, rental management, single and multi-family, new home and land development, and has many creative sales techniques. http://bit.ly/InvestingWithJerry