If you’ve been in the world of foreclosure investments, you know there’s been a struggle finding inventory. With foreclosure moratorium legislation in place across the nation and mortgage forbearance available to homeowners, foreclosures properties for purchase have come to a slow trickle amid the COVID-19 Pandemic.
In this article, we’re going to outline how to keep/start making money on foreclosures in 2021. We’ll walk through seven tips for buying foreclosures, including how to recruit real estate agents to help you, how to find the right investments, how to get a pre-approval letter quickly and how to build wealth through property investments.
Get a broker on your side.
Despite “how to delay foreclosure” being a top search query of 2020, foreclosure inventory has been hard to come by in recent months. However knowing the right people (agents) can get you ahead of the game and allow you to find the right properties before other investors.
Right now, it’s a good idea to look at properties in pre-foreclosure. While federal and state foreclosure moratorium and COVID-19 mortgage forbearance have been extended, it’s unlikely all protections will last throughout the remainder of 2021. Gaining knowledge on which properties are in preforeclosure, could give you some insight. When pre-foreclosure filings are underway, you could have the option to purchase early in the process, which in most cases helps out the foreclosed homeowner. Whether you purchase the home at a discount to flip it or rent it back to the previous homeowner to get some quick, monthly income, there are several opportunities in this stage for investors to build wealth through foreclosure investments.
How do you know when properties are in pre-foreclosure? A relationship with a good real estate agent helps out here. Some agents may have even been a part of deals on foreclosed homes alongside the bank or lender on previous deals, meaning they could have insight on what will be coming onto the market. Additionally, they will have the hookup on which properties are already on the market through various resources, including through MLS searches. Here are some ways to find properties, so you can start making money on foreclosures as soon as possible:
- Find your real estate agent connection
- Be on the lookout for real estate signage while you’re driving/traveling
- Browse county office websites
- Browse bank websites
- Search government agency websites
- Attend online auctions
- Attend live auctions
In addition to connecting with real estate agents to find properties, connecting with an in-the-know agent also makes the foreclosure-buying process easier. A distressed transaction is quite difficult, but if you have a go-to, experienced foreclosure agent, they can help you negotiate payoffs, prices and gather the necessary paperwork to close your deals and start making money on foreclosures.
How to recruit real estate agents who will help you find the right properties
There are a few ways to recruit your real estate agent. You should definitely talk to any friends or family to see if they have any agent referrals. The chances are that someone you know and trust has used and would recommend an agent for you to connect with about any foreclosure experience they may have.
Another way to connect with the right real estate agent is to talk with them at open houses. This route provides you with a relaxed environment to get to know the agent and their experience a bit.
You can also search for foreclosure-specializing agents online. Many agents write blogs, and a simple search-engine query could lead you to the right agent to help you in making money on foreclosures.
Once you find an agent or two, vet them! Don’t work with agents until you fully interview them and understand their experience with foreclosure. To help you better understand which questions you might want to ask them, here are a few things to keep in mind when recruiting a real estate agent– can they help you do the following?
- Negotiate terms, payoffs and prices regarding the distressed transaction
- Communicate with the lender, bank and/or loan-servicing companies
- Review sale and foreclosure documents to confirm and verify any liens that could affect the transfer of the foreclosure, becoming the buyer’s issue
- Support you in reviewing and requesting appraisals, inspections and insurance before closing on the property
Get a preapproval letter fast and clean
Before you start searching for a foreclosed property, you have to get pre-approved for a mortgage, if you can’t buy the foreclosed home using cash. The lending entity will verify that you have enough income and credit to qualify for the loan. Once this happens, the lender will send you a pre-approval letter, and sellers will know you’re serious about purchasing a property. This comes in handy when multiple buyers are putting in bids on the same property; your pre-approval for the mortgage gives you leverage, and you’ll beat out any bidders not already pre-approved.
Look at comps before making an offer
During your property search, you’ll want to look at comparable properties near your potential purchase. Analyzing comps will help you to avoid any pitfalls and ultimately generate a positive cash flow from your investment. It’s a good trick of the trade to not settle on the first foreclosed home that comes your way. Instead, take a look at your budget and any search criteria you’ve established– does the investment property match up, or could you get a better investment if you kept looking?
Insert the comparative market analysis here. This is the process of estimating the value of the foreclosed homes you may be interested in based on recently sold, comparable properties (real estate comps) in the same neighborhood or surrounding area. Our advice is to compare the prices of about three different properties against the potential investment property, adjusting for feature differences, as needed, to understand where the property stacks up. This will help you understand the fair estimate of the market value of the foreclosed home, so you can get it for the right price and be on your way to making an ROI on your property.
Bid the higher price if homes are selling quickly
Foreclosed homes are already below market value, and sellers don’t want to go any lower on the price than they have to. Coming in at a ridiculously low price is where a lot of bidders lose out to higher-bidding investors. In today’s real estate market, property is coming off the market almost as soon as it’s being put on the market, and with foreclosure inventory already at an all-time low, a good strategy is to bid higher to get the home you want. Working with an experienced agent and looking at you real estate comps are good strategies to know where you should come in with your bid. Don’t forget to include a contingency in your offer that the sale will only be finalized when the home inspection has been completed. Your real estate agent will be able to help you through this process.
When you’re thinking about your budget and bid, you may be asking, “will the bank pay closing costs on foreclosure?” The answer is sometimes. If a lender has set on a property for a considerable amount of time, they may offer to pay closing costs as incentive for you to buy. However, this is less likely to happen with multiple bidders and low foreclosure inventory– more competition means lenders don’t have to provide as much incentive. Despite this, it’s worth considering, depending on your specific situation.
Find tradespeople who can assess and repair damage
When purchasing a foreclosure, it is vital to get a home inspection before sealing the deal. Your real estate agent can hook you up with a good home inspector who will inspect the property and draft a detailed report of their findings. If the inspection discloses any expensive repairs you were not initially aware of, revisit your budget to see how the needed repairs will impact your return on investment. If the repair estimates are more than you can afford, you should walk away from the property. Note that buying a foreclosed home at auction leaves no time to schedule a home inspection.
Once you have an inspection, and you know what repairs are needed, you can hire the right tradespeople to help you flip or repair the home, so you can make a return on your initial investment.
Once your new property is repaired and ready to go back on the market, hiring an investment property management company might be a good idea for you, depending on your specific needs.
Keep up with the latest news
As stated above, while COVID-19 has brought about a lot of legislation to halt foreclosure cases for the moment. Despite the delayed foreclosures, it’s unlikely that these moratorium extensions will continue throughout 2021. It’s also unlikely that many foreclosed homeowners will be able to make good on their payments before the extensions end. Real estate investors should keep up with the news to gauge the state of the foreclosure market to know when to ramp up foreclosure search initiatives.
While foreclosure market inventory is currently low, there are still ways to make money with foreclosure investments. Finding the right, experienced real estate agent is a good first step. Your agent can then help you walk through the above steps in becoming a successful real estate investor. Knowing the right professionals, places to search for foreclosure properties, your investment property budgets and the real estate processes to take are the keys to efficacy in the real estate foreclosure investment space.