16 August 07 - 18:01Investing in a Preforeclosure: Preparing Your Offer

You’ve contacted the owner of a preforeclosure. 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 property. Do this by calculating the difference between the market value of the preforeclosure and the default amount plus liens and repair costs.

2. Negotiate with the holders of liens on the preforeclosure property. 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 property, resulting in more profit for you.

3. If you plan to flip the preforeclosure property, 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 property
• Seller's commission if you use a broker to resell the preforeclosure property after you’ve bought and refurbished it
• Every other legitimate expense associated with buying, repairing, carrying and selling the preforeclosure property

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