If you are thinking about becoming a real estate investor you need to focus on the method that will make you the most money. Most investors find a piece of property they like, get a loan, buy it and then hope it increases in value so they can make a profit. This is not the best way to make money in real estate investing.
The secret to becoming rich with real estate investing is to buy property that already has profit built into it. This is hard to do when you are trying to buy a piece of property when the owner is trying to get as much profit out of it as he can. The way to buy property with profit in it is to buy from someone who really needs to get rid of it.
One of the best ways to do this is with pre-foreclosures. Pre-foreclosure is the period between an owner being behind on payments and when a bank forecloses and takes a property back that. If an owner is behind on his payments and thinking of sell this is not normally public knowledge, It usually becomes public when the bank files a notice of default or whatever instrument that state uses to start a foreclosure process.
Most states have either trust deeds or mortgages as the principal part of the real estate loan. A typical foreclosure in a trust deed state has the lender filing a notice of default to start the process. The owner has a certain number of days to bring the loan current. If he doesn’t then there is an advertising period in a newspaper and at the end of that period the lender takes back the property and puts it up for auction. We want to buy it before or during the 90 day period.
Even though we are going to try to buy before the property becomes public knowledge or at least before it goes to sale you should know as much about the entire process as possible. You want to help people who don’t want to sell their home and would like to save it. Help them now and if they decide to sell later they will remember you. I’ve had owners call me a year after I first talked to them to let me know things didn’t work out and they needed to sell.
The best time to deal with a pre-foreclosure is before anyone else knows the property is in trouble. There are a number of ways to do this. First of all pick a working class neighborhood to “farm”. A neighborhood with 300 or so homes is big enough to start with, as you can always expand it. Concentrate most of your effort on this area instead of chasing all over. I walk for exercise so I make it a point to walk in my farm area and combine my exercise with the methods I describe below:
- Bandit signs-Most cities have rules about putting up unauthorized signs hence the name bandit. The best way to do them without getting caught is to put them up on Friday night and take them down on Sunday night. This is a lot of work but you can hire some kids to help. A simple sign that says “I buy houses” and a phone number is all you need on it. Keep them simple because you will lose some over time to kids, homeowner and possibly the city. .
- Door hangers-Every couple of weeks go through your farm and put out door hangers. If you just have flyers saying you buy houses you’ll start making some people angry. I started putting public service or coupons on the back which made solicitations a little less obnoxious. The public service could be a garage sale announcement, a school swap meet, church summer camp or something similar. The way I did the coupons was I went to a pizza parlor in the area and offered to put a special offer coupon on my flyer if they would pay for the paper. Use your imagination and all kinds of things will come to mind.
- Flyers-If a school or church in the area is having a swap meet or something similar you can often get them to let you pass out flyers there, especially if you have advertised for them with your door hangers.
- Send out letters-With postage so high this may not be too good of one if you are just starting out.
- Phone-Sometimes you can contact them by phone although many times it has been turned off. Often the neighbors may have a way of reaching them, at work or by cell phone for instance.
6.. Cruise your farm-Walk, bicycle or drive around your farm and talk to people. Most people are friendly and somewhere in the conversation ask them if they know anyone in the neighborhood that might be interested in selling. Don’t mention foreclosures, just say you like the neighborhood and would like to buy a house there..
There are a lot of other methods you can use, but these will get you started and you’ll think of others.
At the same time you are working your farm you need to be checking the notices of default (NODs). These are public information and can be found in several different places:
- Online-Several companies provide NODs everyday for a fee. The problem is they are a week or so old when you get them.
- Subscribe-There are also companies that will send them to you by mail, again they are old.
- Recorders office-Typically the county recorder prints out a copy and puts them in a book which you can look at, usually the day after recording. Some offices have microfilm and machine you can use. This is how I started, until I could afford to subscribe now I use the one method described below.
- Recorders website-The best way I’ve found is to go to the recorders website where the NODs are normally online the day after recording. This is the quickest and easiest method and it’s free. Unfortunately not every recorder has this service.
When you find a NOD filed on a house that might be of interest you need to gather as much information about it as you can. This can be done online, through a title company website or with a real estate agent. Get friendly with an agent because they can be of great help to you.
The information you need on your NOD or pre-foreclosure lead is the mortgage amount (find all the loans), information about the property, who actually owns the property, what houses are worth in the area, etc. Learn as much as you can before you contact the owner about buying the property.
Having all the information on the property and knowing about the foreclosure process will give you leg up when dealing with an owner. Don’t try to act like an expert or professional unless you feel that’s what the owner is looking for. Try to be the same type of person as the owner. I normally go to meet them in ordinary clothes and driving my pickup. Don’t go to a working class neighborhood in your suit and driving a Mercedes.