The 3 Keys To Buying a Foreclosure
Whenever we share progress photos of one of our flips, we inevitably get a bunch of questions on how we find flips, renovate them, and then sell them at a profit, especially in a tough real estate market like we have here in California.
That's why we've created a series of videos to share our best tips and tricks on how to buy a foreclosure and then flip it for a profit. Our newest video in the series shares three keys to buying a foreclosure that will make you money.
It is just as possible to buy a foreclosure and flip it for profit as it is to buy one, flip it, and actually lose money on the sale. That's why you want to know what to look for when shopping for that perfect flip.
Here's the video we recently shared on our YouTube channel. Or, scroll down to read the key takeaways from the video.
The 3 Keys To Buying a Foreclosure:
1. Find The Property:
If you're looking to buy a house in the foreclosure process, you'll need to start with finding the property. We have three different strategies for finding these homes.
Property Radar: Great information on notice of defaults and trustee sales. This gives you a list to start with when determining what properties you could flip.
Property Shark: This is another service similar to Property Radar. If these aren't showcasing pre-foreclosure properties in your area, find one like these that is.
Build Relationships: Get to know a title company in your area and build a relationship with them. Take them out to lunch. Let them know what you're interested in so they can share these properties when they come across their desk.
2. Contact The Homeowner:
A. Knock On Their Door:
Once you find a potential flip, it's time to kindly contact the homeowner. It's important to come from a place of service. You can start by knocking on their door and getting to know them. Realize they are in a distressed situation and they are often afraid they're going to lose their home to the bank.
Start by letting them know who you are, that you understand the foreclosure process completely and that you're there to help so they do not lose their home to the bank.
There are three things they can do:
Sell: They can sell the property to you or someone else.
Loan Modification: They should have received a letter with this information from their lender.
Refinance: There may be a chance they could refinance.
If you can establish trust, they may decide to sell the home to you. Or, you may be able to help them restructure their loan so they do not lose their house.
B. Send Them a Letter:
Handwrite a letter to the homeowner that shares the same information as above. Let them know that you do not want them to lose their house to the bank and that you want to help them.
Oftentimes, they'll say that they have it taken care of. If they have, they should have received a release of the notice of default from the bank. Ask them if they have received this letter. At this point, they usually realize that you know what you're talking about and you can start a conversation with them. So, don't leave when they say, "I have it taken care of."
3. Close The Deal:
If you need a realtor who can help you close the deal, give us a call. We can help you close the deal anywhere in the United States.
You will need cash to purchase a foreclosure. Many people will take out a loan, pull money out of their house or borrow the money for that first flip.
Or, find a Fix and Flip Bank that will help you finance the property. Although, they usually want to see a track record of successful flips before they'll invest, so you'll have to bootstrap that first few flips.
You don't need to use a realtor on the purchase side, but it's very important to use one on the sell side to maximize your return on your investment.
Consult with a real estate attorney in your state prior to doing any foreclosure work in your state to ensure you're compliant with all laws.
The #1 Key To Buying a Foreclosure:
The most important part of buying a foreclosure is paying the right price. You'll need to do your homework or work with a realtor who understands the market so that you can determine a price that is fair to the seller and will ultimately be profitable for you.
Start by determining the after renovation value or what you think you can sell it for after you fix it up. Then, subtract all of your costs and your net number should be enough for your seller to walk away with some equity and leave enough room for you to have a profit you are comfortable with.
After Renovation Value
- closing costs
- carrying costs
- renovation costs
= net number that gives seller some profit and leaves you with enough profit for it to be a viable flip
Don't move on a foreclosure unless the numbers make sense. The number one mistake we see is people getting too excited about a flip and then not being able to walk away if the numbers don't add up.
Questions? Let's schedule a call and discuss all the steps so that you can feel confident getting started. Give us a call at 916.524.9733.
Or, if you are facing a foreclosure and need help considering your options, we can help you do that, too. We recently met a family that was facing foreclosure right before Easter. We were able to help them get a loan modification and they didn't lose their house.
Also, check out our YouTube channel for more videos on foreclosures and let us know if you have any questions or topics you'd like us to explore in future videos.
Russell Enyart and the Enyart Real Estate Group are top real estate agents serving serving West Sacramento, Folsom, El Dorado Hills, Granite Bay, Loomis, Rocklin, Roseville, and Sacramento County, Placer County, and El Dorado County.