Wholesaling Pre-Foreclosures

9 Replies

Hi all!

I have a direct mail campaign out to homeowners in pre-foreclosure, but I'm finding that even when homeowners do have some equity in the property, it still doesn't help the homeowner if I offer 65 or 70% of market value in cash.

One example - I just heard from a homeowner with a house in pre-foreclosure worth about $320,000 (based on my comps). The homeowners owe $266,000. If I offer 65% of market value (~$208,000), they would still need to bring almost $60,000 to closing, which they can't do.

So, my questions are:
1) Does anyone know of strategies that would work in this type of situation? (owner financing options, subject to, etc?)

2) Are any investors buying properties that are a certain dollar amount under market value (ex. $50,000 or more under market value) instead of a percentage (30% or more) under market value?

Would love to hear your thoughts - thanks!
Laura

Hi Laura,
My experience with people in pre-foreclosure is that they most often will be a short sale (if they're upside down) or a sub to (if they're not). I have yet to come across one with enough equity for actual wholesaling. Short sales I still don't deal with because I simply don't want to, so I pass those leads along to those who do.

But I did take it upon myself to seek out some mentoring and learn how to close subject to deals. The key question to ask is if they would sell for what they owe. If that answer is yes there is a deal in there somewhere.

I know nothing about your market, but using the numbers in your example above, it would not be unreasonable for you to sell the house quickly @ $300,000. Asking only 10% down and allowing the buyer to take over existing payments. You could even share some of that back with the seller. (if they're willing to sell for what they owe and just happy to not have to pay, imagine how much more willing they would be if they got some cash back at closing?)

Now, I didn't take into account any fix up that might need doing, but you get the gist of it I'm sure.

Thanks Jerry!

I think my seller will sell for what they owe...they are tired landlords about to go into foreclosure and just want to avoid the credit crisis. Do you think I could sell this property to an investor or are you speaking of the retail market? I'd be more than happy to sell it at $300,000! Just am not sure who to be marketing to.

Thank you - I really appreciate the experienced investors on here that share their wisdom with us newbies. I hope the karma is treating you well!

@Laura Johnson-Morris ;
The only way you'll get an investor interested is if the P.I.T.I. is significantly less than what the market rent is. If your tired landlords of this home are going into foreclosure, then I doubt the property will cash flow.

Here are the basics to selling this house quickly:

1. Show the owners that sub 2 is their best option (for more on how to accomplish that, follow the link in my signature to my website, and hit the Real Estate Info tab. Bear in mind here that the motivator is speed, because they do in fact have enough equity to list).

2. Get the house under contract with owner financing terms. This is the place to disclose, disclose, disclose. Tell them about the due on sale clause. Tell them you cannot guarantee the buyers will make their payments. Tell them that even though the loan is still in their name, they are not landlords and have no rights whatsoever. They need to know all of these things, and you need a signed and notarized copy of the disclosure so they cant accuse you of misleading them later on.

3. Find an Investor friendly Title company who is familiar with sub 2. Tell them what you're about to do, and ask about all the documentation needed. This is key, a vital player on your team. (Do this step anyway, even if you don't get this house...you never know)

4. Go buy a dozen of those cheap little blank yard signs (the ones with the wire H frame work fine), a big fat tipped sharpie, and a lock box. Write:

"House for sale
Owner Financed!
Call 555-555-5555"

Put one in the yard, and a few at intersections around the neighborhood. Your phone is going to ring off the hook. I set up a separate Google voice number, and recorded a greeting that gave the address, price and terms, etc. Vet them as carefully as you can. Show the house to the likeliest candidates. ( since you have a lock box, their name and number, you don't have to go every time to showings.)

5. When you've found and qualified your buyer, take a good chunk as a non refundable deposit, and assign the contract. Collect the rest of the down payment at closing. You will need to decide what you will take as a down. I'd say ask for 10%. You need to make sure it's enough to ensure they're serious.

As I said, these are the basics. It's a very easy thing to do, but not simple; there are too many details. But just like "normal" wholesaling, once you've done one deal, all the confusion will fade, and you'll be left with a new tool in your kit.

Hi Jerry!

Great advice - thank you so much! I just had another one of these pre-foreclosure situations call me and I'm looking forward to using the sub 2 solution with them.

Also, your website is great - especially the sample letter you provided!

I was hoping you might be able to answer a few more questions for me - here's what I'm still wondering:

1) Do you usually set up a balloon payment in the contract, and if so, how many years/months down the road? Also, if you use balloon payments, is it easy or difficult for the buyer to refinance, and are there any tricks to doing so?

2) You mentioned that when you find the buyer, you want to take a sizable non-refundable deposit. I've heard for standard wholesales that you should take $2000 or so of your $5000 wholesale fee as a non-refundable deposit. Does this sound right to you or would you do it differently?

3) Any tips or tricks you use to qualify buyers?

Thank you!! I'm really nervous because I just got off the phone with a seller who wants to meet this weekend to look at her property. I feel way in over my head but I am very appreciative of the seasoned veterans on here that are helping out!