Pre-foreclosures

5280HighButter · Soul Rider Joined: 16 Mar 2005 Posts: 258 City: Littleton

I was just wondering if anyone on here buys pre-foreclosures. If so has anyone done a sub2? I am interested in "soliciting techniques", strategies, competition and if any soliciting laws would apply if you went door knocking or called a person offering your help. Post your experience or PM me!!!

smokedog2 · Outlaw Joined: 02 Dec 2004 Posts: 210 City: Cincinnati

Pre-foreclosure is tough. You need an owner not in denial (no small feat), a bank that will deal (not all will) and time to get it done. All the while the owner will likely have a realtor sign in the front yard. I’ll skip the stories; this is a tough way to do real estate.

Foreclosure has many issues that are state dependent. In the end the bank buys them back. This is a mistake, but they buy them back.

In the old days, 5 years ago you needed 20% down to buy a house or you had to pay for PMI. Then, to get the business, banks allowed a second mortgage for 10% (80/10/10loans). In the last few years you could with marginal credit get an 80/20 where the 20 was a second mortgage. You were an owner with no money in the house. The interest rate on the 20 might be 15% (I’ve seen it) but because it was “tax deductible” they were what people wanted. These loans are coming back in droves to the banks in Ohio. My market has 10,000 houses listed. It is usually around 6,000.

My best advice is to know your rental market. Buy houses that can command above average rent at a price where the rent would give you a 10-15% free cash flow MINIMUM. That will kill a lot of deals, let them die. Even if you think you are a flipper, you will occasionally be stuck with a strike (like I am) or some local event that will kill the market. Being able to rent when you need to ride out a storm is important. If you cannot make the payments, you will lose all that you have.

my $.02, worth what you paid for it.

SD2

5280HighButter · Soul Rider Joined: 16 Mar 2005 Posts: 258 City: Littleton

Thanks for the reply! I have realized how difficult finding willing homeowners can be. That was part of my post, "how to find people willing to lose equity to avoid foreclosure." This seems to be the hardest part of a pre-foreclosure. My original exit strategy would be a flip at 80-90% of MV to unload quick. The current houses I have been looking at would not cash flow well, so that is a good idea, have an either or for each house I consider buying. I can carry the payments in this crappy market, but who really wants to do that. Do you buy hold? If so what are your strategies for buying below MV in this market. 70% value is optimal, have you found this outside of foreclosures?

smokedog2 · Outlaw Joined: 02 Dec 2004 Posts: 210 City: Cincinnati

It is the people with NO equity that do the short sale (pre-forclosure). They owe the bank more than it is worth and you are getting the bank to take a bath.

MV IS the cash flow. Everything else is the emotion of the seller, you and the next buyer. Do not confuse speculation with investing.

Look for free cash flow. in stocks, RE, whatever. FCF can overcome many other mistakes. Lack thereof can crush an otherwise faultless plan.