You’ve contacted the owner of a preforeclosure home. You’ve talked to him about the possibility of saving his preforeclosure property from a foreclosure auction. The owner is receptive to what you have to say. Now it’s time to prepare the offer.
1. Determine the net equity in the preforeclosure home. Do this by calculating the difference between the market value of the preforeclosure and the default amount plus any liens and repair costs.
2. Negotiate with the holders of liens on the preforeclosure home. This would usually (but not always) be a bank. Lien holders are aware that they could lose everything if the preforeclosure sells at a foreclosure auction. Offer to satisfy the lien for, say, 20% of the lien amount. Buying out the lien puts more equity in the preforeclosure home, resulting in more profit for you.
3. If you plan to flip the preforeclosure home, remember to include closing costs in your calculations for the purchase and sale of the preforeclosure. Also include these costs:
• Carrying costs
• Mortgage payments and taxes and insurances while you hold, repair, and then resell the preforeclosure home
• Real estate agent’s commission if you use a broker to resell the preforeclosure home after you’ve bought and refurbished it
• Every other legitimate expense associated with buying, repairing, carrying and selling the preforeclosure home
The remaining amount must pay the homeowner for his preforeclosure home and produce a profit for you.
There are several ways that real estate investors determine how much to offer the owner of the preforeclosure home. Some real estate investors itemize every expense, show their calculations to the owner of the preforeclosure home and offer to split the profits. Some itemize expenses and pay the owner of the preforeclosure the remainder on the bottom line. Other real estate investors make offers on a preforeclosure home based on the bottom line, and negotiate from there. My courses show you exactly how to calculate all of your expenses using a simple five step formula.
Once they’ve acquired the preforeclosure home, real estate investors can make further profit by making repairs themselves, negotiating lower seller commissions, or selling the property themselves (without using a real estate agent).