How do I buy a foreclosure without capital?

Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes

If i'm the high bidder in a foreclosure auction, but don't have financing already set up, how do I buy this house I know I can get $100k to $150k under ARV? Does anyone know an investor on the Big Island?

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

10y

@Dave Jimenez your wasting your time .... your getting the cart way before the horse.

If you have no funds yourself.. you need to find a money partner.. that's all you should be doing now.. selling yourself and the concept of buy low sell high.. what other skills might you have.. you need to really understand construction. and in Hawaii remodel cost are WAY more than other areas of the country.. so you need to get that handled.

with the online bidding companies. you need to usually post some fee to bid. usually a few grand.. and you need a REAL POF ( proof of funds) .. and then all the other things you state

@Sabrina Kane Sabrina want to be careful recommending sub too on homes that are in foreclosure.. while this may be a strategy in your state. on the west coast we have anti equity stripping laws and laws on who can even represent or talk to a homeowner in foreclosure.. so this being a national site.. want to keep that in mind.. I use to love what you described tough I bought most of my rentals in the day with the exact same model.. until the laws changed in 07 and it was no longer legal to do so.. but again every state is different that's the only reason I bring it up.

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Sabrina Kane
Houston, TX · Member since 2015 · 111 posts · 155 votes
10y
I would first try to contact the home owners and get it even cheaper. I would acquire it subject to the existing mortgage that way you only have to come up with the amount its behind on payments ,some fees, and the cash for keys amount to the homeowners. I would go this route first before the auction. Thanks Sabrina Taylor
2 Reply
Ryan Dossey
Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
10y
If you're an investor bidding on foreclosure deals and you can't close expect to lose your EMD. They will let a regular homeowner do that. But they expect us to "know better". 100k under market value doesn't necessarily mean much if it needs 80k in renovations or is a 7 figure home. If you can give us some more details we can help you better!
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Mark Allen
Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
10y
Because it's already been foreclosed on you can't negotiate with seller or take home Sub2. You can reach out to Hard Money Lenders or other investors in your area to see if they're willing to fund the deal. It's probably a good idea to have financing in place before bidding.
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Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
Thanks for all the replies. The property is in Hawaii. The house has a high bid of under $400k and there are 2 other houses for sale on the street for $549k and $599k. It's bank owned.
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Patrick McCandless
Residential Real Estate Broker · Paso Robles, CA · Member since 2015 · 196 posts · 58 votes
10y
Dave Jimenez do you have any experience with pricing homes? Just because there are other homes on the same street that sold for that much doesn't mean this home in question will be able to sell for that much even if it has gold plated toilets. Do you have a realtor who can pull comps and give you a price opinion? Take into account livable square footage and lot square footage for comps and don't leave out your fixed/holding costs when running numbers. Be conservative!
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
Typically, at auction, one pays on the spot or in some jurisdictions, within 24 hrs by cashier's check - - there's no time to negotiate price or find a lender. Without cash, imo, you're way out of your league and not prepared to play this game.
You must have been reading books on "No Money Down" or "Using OPM".
1 Reply
Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
Correct! I have been reading books on no money down. It's an online auction on "hubzu." Have any of you guys used this site before? Would any of you suggest using crowdfunding or hard money to fund this?
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Sabrina Kane
Houston, TX · Member since 2015 · 111 posts · 155 votes
10y
@Dave Jimenez i think you should partner with someone who has more experience in this area because its wayyyyy to many elements and factors that need to be looked into before you touch this deal.
Even a hard money lender will want to know there money is in good hands with a little experience. Find a partner to mentor you.
@mark
@Mark Allen depending on when the auction is you can grab the deal, however in this case (new info provided) online auction you're right no time for negotiations. Cash is king.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Dave Jimenez your wasting your time .... your getting the cart way before the horse.
If you have no funds yourself.. you need to find a money partner.. that's all you should be doing now.. selling yourself and the concept of buy low sell high.. what other skills might you have.. you need to really understand construction. and in Hawaii remodel cost are WAY more than other areas of the country.. so you need to get that handled.
with the online bidding companies. you need to usually post some fee to bid. usually a few grand.. and you need a REAL POF ( proof of funds) .. and then all the other things you state
@Sabrina Kane Sabrina want to be careful recommending sub too on homes that are in foreclosure.. while this may be a strategy in your state. on the west coast we have anti equity stripping laws and laws on who can even represent or talk to a homeowner in foreclosure.. so this being a national site.. want to keep that in mind.. I use to love what you described tough I bought most of my rentals in the day with the exact same model.. until the laws changed in 07 and it was no longer legal to do so.. but again every state is different that's the only reason I bring it up.
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
@Jay Hinrichs good call on both point Jay. I got started down that path and having a habit of looking before jumping, I ran smack into CC 1695 and Equity Stripping.
0 Reply
Sabrina Kane
Houston, TX · Member since 2015 · 111 posts · 155 votes
10y
@Jay Hinrichs i will start disclaiming to any comments to check your local laws :) youre right his area maybe a no no thanks
On the other side ...
Equity stripping is down right wrong! I know there are dirty hands that will do this. And has made it bad for us good guys to use the strategy Where eveyone wins! #NoEquityStripping
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Jeff B. most states have passed similar bills but you know who reads the laws anyways.. I am sure there are folks who do this all the time.. regardless because of things they read on BP or other publications that are talking about strategies that may or may not be legal in todays world.
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Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
Thank you everyone for the replies. In regard to the auction, it requires an $11,000 earnest money deposit within nine days. Also, the site asks if you will be paying cash or needing financing. It appears as though it allows you up to 35 days to gather funds. Does anyone else have experience using hubzu? In regard to the property, though I have not physically seen the interior, the photos show it in fairly good condition but needs updating. It was built in 2001, we drove by and the exterior condition is good. It does need some yardwork, but we intend to owner occupy and rehab it before flipping or refinancing. I appreciate everyone's input about being conservative, but aren't I missing a huge opportunity if I never try?
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Adam Bontrager
Investor Relations Manager · Cleveland, OH · Member since 2015 · 117 posts · 50 votes
10y
While it's possible to invest in real estate with little to no money (see @Brandon Turner's book on Investing with No and Low Money Down :P) it's not easy and you have to bring something of value to the table. If you're not going to put up the capital, you're going to have to hustle to find someone else who will.
That being said, there are plenty of investors out there with deep pockets but little time who are eager to partner on deals. You just have to get out there and find them.
First of all, BiggerPockets is a great resource for finding money partners. Get out in the forums and start networking with people on BiggerPockets. I would also highly recommend joining your local REI group; there is one in almost every major city. This is one of the surest ways to make connections with other investors that will be able to help you in your investing career. Also, try just posting a Craigslist ad. I know most investors browse Craigslist quite frequently. You just might be able to connect with someone who can help you out.
Best of luck to you! Let me know if I can be of any further assistance.
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Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
Thanks Adam! I guess the reason I even think it's possible IS because I just read that book! I am very eager to find an investor who is willing to put up the capital and that's actually why I'm here on the forums. Do you know any REIs in or that are familiar with Hawaii? IMHO, this particular property is pretty much a no brainier. I think any investor that looks at the property and the deal would be very interested in it. It should sell for $550k plus and I should be all in around $425k to $450k including reno costs.
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John Weir
Contractor · Greenville, SC · Member since 2015 · 129 posts · 25 votes
10y
I know our county foreclosure auction requires 10% of purchase price within 24 hours and gives you 30 days to obtain a conventional loan, or something like that. The only two I've bought were paid up front cash so don't hold me to that, but I'm pretty sure there is some way to obtain financing. Just remember when doing a flip if the home sits for months or even a year you will be paying interest. Should probably look at finding a partner or local real estate expert for some advice. I also advise starting a little smaller than a $400k home just to get your feet wet and learn as you go without those big numbers. Good luck though!
0 Reply
Jacob Sampson
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
Move on properties you are prepared to move on. If there was a 2 million dollar property for sale for 1 million I would have to pass because I'm not prepared to play in that particular game. Maybe one day, but we all will be much more successful if we play the game we are prepared to play and move up slowly.
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Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
Boy, am I getting negged out! lol. Would you guys recommend wholesaling it to a local REI then? Is that even possible?
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Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
Originally posted by @John Weir:

I also advise starting a little smaller than a $400k home just to get your feet wet and learn as you go without those big numbers. Good luck though!
I appreciate this John, but it's Hawaii. For my area that IS cheap.
1 Reply
Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
Finally! A "YES" vote!
1 Reply
John Weir
Contractor · Greenville, SC · Member since 2015 · 129 posts · 25 votes
10y
@Dave Jimenez That's true! Good Luck!
0 Reply
Erin N.
Investor · Neptune Beach, FL · Member since 2013 · 51 posts · 13 votes
10y
@Dave Jimenez I have bought 2 financed properties via online auction. One was Hubzu. I ended up needing more than the 35 days to close, and they allowed me a one time extension. I had to pay a per diem up front for the extension, but they refunded that to me at closing. It was not that difficult to do, but I think the seller has discretion about granting the extension or not. I was able to chose the duration of the extension, and I chose 14 days. I did have to end up using a private lender on that property because my conventional loan fell through on a technicality. It ended up taking 55 days from the day I won the bid to the day I took possession.
I purchased the other property from homesearch.com, and I financed that with an owner occupied conventional renovation loan. That one was 44 days from the day I won the bid until the day I took possession.
With both properties, I had all my inspections and construction bids done prior to bidding on the property. I know that is a risk, because the home inspection costs money and there is no guarantee you will win the bid. It's a necessary risk in my opinion. You also have to be willing to lose your earnest money deposit if the financing falls through. For your $11k earnest money deposit and cost of home inspection, it's a risk I would take in your situation if you can afford to lose that money.
If the property is on Hubzu and is not occupied, you should be able to gain access to the entire property. Why did you only drive by it? Is it occupied or have you just not dug that deeply into it? It's a big enough deal that you should do everything you can do gain full access to the property. You won't be able to turn on utilities, but there is a lot you can learn about the property by going through it with a home inspector.
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Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
@Account Closed thanks for your vote of confidence. Have you done similar deals before?
Either using an FHA loan or private $ to fund it temporarily?
0 Reply
Dave Jimenez
OP
Kailua Kona, HI · Member since 2016 · 23 posts · 2 votes
10y
@Erin N. It's actually occupied. Same vehicle there every time we drive by. There isn't enough time to get an inspector and access it because the auction ends early tomorrow morning.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Dave Jimenez not to be negative nelly or debby downer.. lets just talk reality much of what is bandied about on BP is fantasy..
AGAIN your getting the cart before the horse.
1. if your using a FHA loan you need to get prequalified for that number
2. you will need to have the house up to FHA standards for the loan ( many foreclosure just fall short of this)
3. there are going to be other bidders.. that is almost a given...
Get your ducks lined up then go shopping your just trolling for someone to tell you what you want to hear with no regard to reality.
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