Buy Foreclosed Properties at Auctions
The second way you can buy foreclosed properties is at auctions on the courthouse steps.When you're just starting your real estate career I suggest that you avoid such auctions.Why? Because:
You'll have to pay them off to obtain clear title to the property. This could really put you in a hole financially and negate any possible profit you might make on later sale of the property.
For these, and many other reasons, I suggest you skip property auctions at the start of your real estate career. Once you have some experience with properties and their care and sale, you can explore auctions and the profit potential they may have for you.
When a property doesn't sell at an auction it reverts (goes back) to the lender or the taxing authority that foreclosed on it. These properties are called REOs for Real Estate Owned. Lenders and tax agencies don't want to own real estate they repossessed! So what do they do? Most of these organizations:
"So, you say, "how can I get started buying REOs I can sell for a profit?Here are your easy steps to take:
1. Look in your telephone book Yellow Pages under "Banks to locate potential local real estate lenders having REOs.
2. Contact the bank by phone. Ask for the Mortgage Department. Tell the person you're talking to that you're interested in buying postauction REOs.
3. Don't be put off if you're told the bank doesn't have any REOs. This is a defensive answer because banks and other real estate lenders dislike admitting that they made a bad loan that is, a loan that went into default, requiring foreclosure on the property. It's embarrassing.
4. Continue calling banks, credit unions, insurance companies, and other real estate lenders until you find postauction REOs.
5. Be prepared to be told that a bank farms out its REOs to local real estate brokers. If you're told this, get the names and addresses of the real estate brokers and contact them. Tell the broker you're interested in buying REOs at bargain prices.
6. Have the broker or bank send you a list of available REOs. Drive by each REO to see its external appearance. Ask to be shown through those properties that interest you from an investment standpoint.
7. Get info on local rentals and what your selected properties would rent for BEFORE making any offer on a property. You MUST have a Positive Cash Flow (PCF) on EVERY property you invest in, even when you expect appreciation in value to provide your major profit.Why? Because if a negative-cash-flow property doesn't sell as quickly as you plan, you will have to "feed it with income from other sources. This can lead to major financial problems for you.
8. Take over REOs that promise to provide a good profit when you sell them, usually after some cosmetic improvements. Its best to have this work done by a competent contractor. If you try to do such work the time you spend at it may detract from your business activities of finding new, profitable REOs.
9. Continue building your REO profits until you reach the income level you seek. In some REO situations your $1 million in acquisitions in one year will be a "rolling investment. By that I mean you will have acquired that much value in 12 months but you may have sold some of the properties for a quick profit during the year. Yes, REOs can build your wealth in low-cost properties much faster than the auction route. Further, REOs are better suited to beginners. Once you've bought and sold some REO properties, you can try the auction route to wealth.
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