| When folks find out that I buy houses from | | | | Sometimes it takes quite a bit of research to find a |
| distressed homeowners during the preforeclosure | | | | property that I can make a profit on, but the |
| stage, they always ask the same question: "How do | | | | rewards are worth it. |
| you find them?" | | | | Now, before you call me a mercenary just because I |
| My simplest answer is: "At the courthouse." | | | | look for distressed properties to profit on, let me say |
| Distressed properties are always easiest to find | | | | this: Somebody profits from every foreclosure - and |
| when a mortgage lender begins the foreclosure | | | | it might as well be you or me. |
| process. (The process is triggered when the | | | | Some people think it is unethical to benefit from |
| borrower fails to make a mortgage payment.) | | | | another person's misfortune of losing their home or |
| Technically speaking this is the "preforeclosure" stage. | | | | investment property by buying it from them in the |
| The borrower/homeowner has missed one or more | | | | preforeclosure stage. But I disagree. I look at buying |
| payments, the sheriff's sale or public auction is | | | | preforeclosures as opportunities to help the |
| looming on the horizon, and the homeowner realizes | | | | distressed owners save their credit. When I buy their |
| he may soon lose his home. | | | | property, their debt is paid off and they are free to |
| Depending on which state you live in, the lender | | | | move on with their lives. |
| either records a Notice of Default (NOD) or files a | | | | Foreclosures and other property distress are caused |
| judicial foreclosure lawsuit against the borrower. As | | | | by divorce, unemployment, death, medical |
| soon as the foreclosure is public information, it's | | | | emergency, economic downturn, and any number of |
| relatively easy to find. | | | | personal problems. |
| So, depending on which property I'm interested in, I | | | | Recently, many homeowners bought expensive |
| either do a search at the county courthouse or I get | | | | homes or refinanced to take equity out of their |
| the information from a legal newspaper that has | | | | homes when the interest rates dropped. Those that |
| done the searching for me. | | | | later lost their jobs or had a medical emergency |
| The hardest part is finding a property that has any | | | | suddenly lost their ability to make mortgage |
| equity in it. What I'm looking for is a Loan To Value | | | | payments. Many of those houses are now coming on |
| (LTV) of 80% or less. For example, if a property has | | | | the market as foreclosures because their owners |
| a market value of $100,000, the homeowner can't | | | | haven't been able to sell them.They think of me as |
| owe more than $75,000 -$80,000 on the property. | | | | their guardian angel when I am able to buy their |
| Why? Because I can't spend more than $75,000 - | | | | property prior to the sheriff's sale, save their credit, |
| $80,000 for the property and still make a decent | | | | and pay off their debt. |
| profit. That includes what I pay for the property | | | | For the most part, homeowners understand that a |
| (principle, interest, taxes, and insurance), my repair | | | | real estate investor needs to make a profit to stay |
| costs, and my holding costs. I have been known to | | | | in business. If the homeowners are "upside down" in |
| pass on a great deal, simply because it was | | | | their house (meaning, they owe more than the |
| November and I wasn't convinced that the property | | | | property is worth), and there is no equity in the |
| would sell before summer. I always factor in having | | | | property, then it is very unlikely that they will be able |
| to pay the holding costs on a property for at least | | | | to sell quickly -- to me or anyone else -- and get out |
| six months while I remodel or market the house. If | | | | from under their debt. |
| the numbers don't work, I walk away. | | | | |