Wholesale Pre- Foreclosures. Is it really possible?
Real Estate Investor · Atlanta, GA · Member since 2014 · 23 posts · 2 votes
I make offers on foreclosures with equity every week. I don't mess with pre-foreclosures because from my experience, people in this part of the process more often than not believe they can pull themselves out. That rarely happens. But, it's not worth the argument from my standpoint. I wait till they are about 60 days out from having their house sold at auction. If they have sufficient equity, I drop a yellow letter on their a$$ with their auction date and how I can save them from this fate.
so where is a newbie supposed to start if he can't wholesale? and doesn't have a lot of money to start investing fix and flip properties? go and borrow from his Mother, I don't think so.. Bill is just so negative! I might be a newbie, but I know people are saying things so newbie wont be interested in starting into real estate. p.s. I am webinared out with all the gurus and I don't have 300 to 1500 to buy their courses! that's why I love bigger pockets!
so where is a newbie supposed to start if he can't wholesale? and doesn't have a lot of money to start investing fix and flip properties? go and borrow from his Mother, I don't think so.. Bill is just so negative! I might be a newbie, but I know people are saying things so newbie wont be interested in starting into real estate. p.s. I am webinared out with all the gurus and I don't have 300 to 1500 to buy their courses! that's why I love bigger pockets!
Regarding "so where is a newbie supposed to start if he can't wholesale?" Educate yourself. Get a broker's license if you don't have any money. Learn the ropes. Get a few sales and earn some commission. Then re-assess what you are doing.
In general, It's not Bill is less negative it's more that other people are naive and ignorant.
I see both sides of the argument from @Bill Gulley and @Andrew Massaro , @Eric M. comment captures it well, and I know Bill really knows a lot, have seen many wise comments from him in a multitude of various threads. But I have to argue, having an experienced, proven, and solid buyers list, where you know a cash or HM buyer will pick it up quick is key, I know some pro wholesalers crushing it like that, but they have lots of experience and networking with rich investors. But probably best to avoid foreclosures, I'm not experienced enough to want to touch them, and also have heard some horror stories from some of my mentors in their early days. One where an owner came out with no shirt and a baseball bat, pissed as Hell and ready to go with a violent fight over someone even asking about buying his house (which he was very close to losing)..Another one where the residents being foreclosed on took off with; every single cabinet, appliances, all plumbing fixtures, light fixtures, HVAC systems, water heater, smashed the drywall to rip out all the copper wiring, took the breaker box, took out every interior door, ripped out all or the laminate flooring, stole the garage doors and motors, even dug out a bunch of plants and trees from the yard! and just trashed the place disgustingly - all within a week after the investor had just seen it in perfectly fine condition, he said it was the costliest real estate purchase mistake he's made in all of his investing... These can go horribly wrong and you need have the funds to be ready to deal with some potential BS and/or angry owners in denial.
To the OP @Prince Conley I have to say that not only is 70% ARV more of an actual deal for wholesaling, also you need to deduct out any repairs, which you cannot underestimate if you to develop a good business relationship with your wholesaling clients, learn from some GCs to get an idea of usual repair cost. Repairs need to do whatever it takes to get the property in good enough condition and upgraded enough, to match the comps you use to come up with your ARV, this is key - learn how to comp or else you won't be able to truly know enough to find real value. As for foreclosure notifications and getting lists, probably varies a bit by location, but here in Colorado they file a N.E.D. a Notice of Election and Demand, which starts the countdown to the county auction of the property. From there I am not sure of the time, I think 90-120 days. You can usually get lists from the county, or develop a relationship with title companies to get lists, or most Metro areas will have a website or software to access these, usually with the ability to also access MLS comps, again key to learning pricing ARV and viewing pictures of comps to see the level of rehab and upgrades. You cannot comp a super outdated 70s interior with a completely renovated and modernized property. Comps need to be within a close area (and neighborhoods need to be known, sometimes close but across a certain street can be a huge deal value wise, mileage or fractional mileage for comps varies by population density) similar number of beds and baths, and square feet, as well as condition/upgraded status. Also you need to learn to be able to spot other major issues; foundations, plumbing, electric, HVAC, if you don't know what you're doing you may miss something a cash investor will spot (or have their inspector notice) and want a big deduction on price or even back out completely. If you want to do foreclosure wholesaling you also need to know how to find out all of the liens on the property (often more than one) and how much each lien is for, which lien is foreclosing, and find out how much equity the owners have, that's important.
Like Bill said this can be a fine legal line with wholesaling foreclosures, and they are really not for the inexperienced.
so where is a newbie supposed to start if he can't wholesale? and doesn't have a lot of money to start investing fix and flip properties? go and borrow from his Mother, I don't think so.. Bill is just so negative! I might be a newbie, but I know people are saying things so newbie wont be interested in starting into real estate. p.s. I am webinared out with all the gurus and I don't have 300 to 1500 to buy their courses! that's why I love bigger pockets!
I can help u Stephen being a cash or terms investor.
@Steven Quails
Those that are new to BP (even old members, LOL) may take what I say as negative, I understand that, disagree at your own peril and I don't know everything.
But, I've been around the block, a very big block and I'm just trying to pass what I know along.
Open public forums is probably not the best way to try and teach. I spend much of my time on here having to correct or advise against bad ideas, guru ploys, illegal stuff and stuff that can or will get someone in trouble. Believe me. it's not fun and I'd rather be contributing to more advanced matters, but I feel it needs to be done.
Why?
Because protecting investors and operators from bad ideas or information helps put them on the right track to succeed. There are a lot of rules, regulations and laws out there that most are unaware of. there are reasons why RE is regulated in our society and economy.
Informing newbies or others not only protects these folks from losing money, suffering from illegal activities, it also impacts your reputation among your peers, other professionals in the industry and most importantly in the public. Get a poor reputation in this industry and you might as well go fish!
The top priority in this industry is to protect the public, not Realtors, not investors or operators. It may be hard to grasp, but protecting the public allows you and everyone else to operate, start messing around in unethical or shady practices causing harm to the public will come back on you and everyone. Think not? Look at operators and investors doing seller financing and the Dodd-Frank Act (DF). There were many areas of consumer financing that got busted after the bubble popped, each area had concerns and all of those concerns came about because of unethical and unfair dealings with the public.
We have a lot of leeway to operate in, there are many ways to profit in RE, the more knowledge you have the less money you may need.
Wholesaling foreclosures is very risky. New federal law requires that anyone approaching a party who has received a notice of foreclosure with any "let me help you" angles is under the federal gun. To communicate with these people in anything relating to their foreclosure requires that you be, 1. an attorney, 2. a lender involved, 3. a credit counselor holding a certification as a HUD approved counselor or agency, 4. A Realtor hired by the property owner. Others directly involved may communicate in relation to their involvement, such as a title company, appraiser, settlement agent, but they can not give advice concerning the foreclosure.
Another aspect, interfering with an insured banking institutions operations is another federal offense. You contracting to buy, when you don't have the ability to buy, is interfering in the foreclosure process. The process doesn't stop, but the activities of what a lender may do can change, coordination is required, they need to notify the Trustee of a pending sale, someone may review the file to see if the property is marketable, if it can sell on time, coordinate with a settlement agent or other matters might be addressed. The bank is paying these people to work that file and your bogus sale contract! Might study "bank fraud" and see how it differs from other acts of fraud that involve intent and loss of money , bank fraud doesn't require either!
If you contract on a foreclosure without the intent and means to buy, you are walking into a mine field. Even if you have a list of great buyers, there is no guarantee one is going to buy what you put under contract! Wholesaling a foreclosure is a very bad idea, especially for newbies.
I know how to dance to this music and the risks involved go deeper than most are aware of and I would not want to try wholesaling a foreclosure! :)
I make offers on foreclosures with equity every week. I don't mess with pre-foreclosures because from my experience, people in this part of the process more often than not believe they can pull themselves out. That rarely happens. But, it's not worth the argument from my standpoint. I wait till they are about 60 days out from having their house sold at auction. If they have sufficient equity, I drop a yellow letter on their a$$ with their auction date and how I can save them from this fate.
Yep and I just have a feeling that we will hear more about this in FL, dropping a yellow letter on their a$$ saying you can save them. :)
I make offers on foreclosures with equity every week. I don't mess with pre-foreclosures because from my experience, people in this part of the process more often than not believe they can pull themselves out. That rarely happens. But, it's not worth the argument from my standpoint. I wait till they are about 60 days out from having their house sold at auction. If they have sufficient equity, I drop a yellow letter on their a$$ with their auction date and how I can save them from this fate.
Yep and I just have a feeling that we will hear more about this in FL, dropping a yellow letter on their a$$ saying you can save them. :)
Multiple states have implemented "foreclosure rescue" statutes... I thought FL already did (like NC, although NC statute is (IMO) weak) some time ago.
Anyway, I now see the ambiguity. "I don't mess with pre-foreclosures because from my experience, people in this part of the process more often than not believe they can pull themselves out." But "I wait till they are about 60 days out from having their house sold at auction. If they have sufficient equity, I drop a yellow letter on their a$$..." Well, "60 days out" not at auction, and clearly this is clearly a pre-foreclosure... but you said you don't mess with pre-foreclosures... it's one or the other.
In this environment, many houses with equity get bids well beyond the opening (owed amount) bid. When swimming against the current, the expected result is you will get tired. Persist, and the current may kill you (drowning). Know who bids against you. As Vito Corleone said (paraphrased), 'Keep your friends close, but your enemies closer.'
I am going to jump in on @Bill Gulley 's side. Even though I am a noob to RE investing, I have a great deal of experience as a mortgage broker and wholesale lender. If you look up Equity Stripping you will see a whole ton of info show up in fairly recent statutes about how deeply protected people are when they have gotten an NOD. I have not tried it yet but personally would only approach them from the point that if they have sufficient equity in their house, I can purchase it. And I actually would have that ability. But if I in any way indicate that I can help them with their foreclosure problem by doing anything other than buying the house, then I have to be registered as a Foreclosure Consultant. And that severely limits the things I can do and say. But if instead I am an "Equity Purchaser" (i.e. buying the house with equity in it after and NOD but prior to auction) if the terms are "unconscionable" the courts can still overturn the contract and go after you for losses etc. I am sure I am simplifying and I am not an attorney, but I would tread very carefully here. Prosecutors love to find test cases for new laws. You know what happens if they lose? Nothing. They try again with someone else and move on. Way different than what happens for you if you lose. I can also almost guarantee that it would permanently end your ability to function in Real Estate in any form as it would probably constitute financial fraud. Meaning no RE license of any type ever. And also spreading to Mortgage license, Series 7 FINRA license etc, etc. For me, personally it's so not worth it to be a test case. And this is only at the state level. The Feds now have a whole new series of laws that they really need to test out against somebody to see how the courts will interpret them. Those willing to volunteer should raise their hands now. That could save the rest of us a bunch of grief.