A lot of people have heard about foreclosure investing as a way to build wealth, but have shied away out of fear that it requires lots of money to get started, with all that cash tied up and at risk for years. Nothing could be farther from the truth. It’s possible to get started in real estate investing with just $10 of your own funds and to receive profits of $10,000 or more in just weeks.
Indeed, with more and more foreclosed homes coming on the market than ever before, there’s never been a better time to get started. Let’s go step by step through process of investing in bank repossessed homes to give you an idea of what’s involved. By doing several deals like this each year, you can earn $50,000 or more in your spare time with next to no risk.
Investing in Bank Owned Homes
When a bank forecloses on a homeowner, it is required to hold a public foreclosure auction. If there are no bidders at the auction, the bank that is foreclosing ends up owning the property. The property then becomes known as an REO – Real Estate Owned by the bank. An REO is also known as a bank owned home.
Banks do not want bank owned homes and will often take large losses just to get rid of them. Bank owned homes that you should focus on are those that were bought through a conventional loan, not one backed by any government agency. Bank owned homes that had conventional loans on them before they were foreclosed upon will have enough profit margin in them to be worth your time.
To find bank owned homes to invest in, you can follow the preforeclosure notices in your local online newspaper, or online at foreclosure listing sites, or you can call the foreclosure attorney after the scheduled date of auction. Ask if the preforeclosure was sold at the public foreclosure auction and if not, whether it involved a conventional loan. If so, ask the name of the contact at the bank and that person’s direct phone number.
Three Kinds of Bank Owned Homes to Avoid
As we’ve already mentioned, you need to eliminate bank owned homes that were originally bought with government loans.
Here are three other kinds of bank owned homes that you must avoid:
1. Bank owned homes in poor locations, such as in run-down neighborhoods or very far from town services
2. Bank owned homes that are in such poor condition they should be demolished
3. Bank owned homes in expensive neighborhoods
Look for bank owned homes that are moderately priced in locations where properties sell within two months.
Key Steps Before Making An Offer On A Bank Owned Home
First, before making an offer, ask your real estate agent to determine the fair market value of the bank owned home. Make sure this is a conservative estimate.
Second, go to the bank owned home and inspect it. Create a list of all the needed repairs. You will use this list when making an offer to the bank.
Third, calculate how much money you’d like to make on the bank owned home and come up with an offer based on this amount.
A good rule of thumb is to pay no more than 65% of the fair market value of the bank owned home.
Negotiating With The Bank
When speaking with bank officials, remember that the bank does not want to be in the real estate business and that you are doing them a favor by buying a bank owned home from them. In many instances, you will be the only person to have shown any interest in buying the bank owned home. This works to your advantage.
Another thing to keep in mind is that you must be ready to go on to the next deal if the bank is not willing to sell the bank owned home at the price you would like to pay.
In many cases the bank will be satisfied with just a $100 deposit when you buy the bank owned home . Tell the bank you are not sure in which name you would like to take possession of the bank owned home and that you therefore need the phrase “and/or assigns” after your name in the sales contract. Also tell the bank you need ten business days to decide this. You then have two full weeks in which to find an investor for the bank owned home.
Finding Investors For Your Bank Owned Home
The way you turn buying bank owned homes into a quick profit-making activity is to sell the bank owned home to an investor at a price higher than what you paid. You can find investors by advertising in the local paper with the largest circulation under the headings, “Investment Property,” “Capital Needed” or “Business Opportunities.” Your ad might go as follows:
Buy investment residential real property
in excellent neighborhood 20 to 30%
below market value. 202-555-1212.
Make sure you have voice mail or an answering machine set up to take calls 24 hours a day. Out of every 20 calls you get, one or two are from serious investors. You really only need one! Tell those who seem to be serious investors that you have a bank owned home to sell and will split the profit with them 50/50. All they have to do is put up the money for the bank owned home deal.
Your last step is to go to the settlement at the bank with your investor to make sure that the deal goes through smoothly.
An Example Of A Bank Owned Home Deal
To make this more real for you, here’s an example of a bank owned home deal I did. I found a townhouse in Dumfries, Virginia that was owned by a bank. Because the bank owned home needed a lot of repairs, the bank was motivated to sell it at a very deep discount.
I determined that it would cost a few thousand dollars to repair the bank owned home. Although the bank owned home was worth $130,000, I offered $21,400, and the bank accepted my offer. I did not want to get involved in doing the repairs, so as soon as the bank accepted my offer, I sold the bank owned home to an investor for $55,000. My profit on the bank owned home was $33,600. This bank owned home deal was not difficult. All it took was some patience and persistence. You can do the same and profit with bank owned homes just like I do.