Real estate investing can be a lucrative business, and one way to find great deals is by looking into pre-foreclosure properties. Whether you’re wholesaling, fix and flipping, or building a rental portfolio, working with pre-foreclosures is a very timely way to find worthwhile investments.
However, there’s a lot involved in discovering, evaluating, buying, and profiting off of a pre-foreclosure. So to help you focus on the properties that are most likely to bring you a sizable profit, here are the steps you need to follow if you want to invest in pre-foreclosure properties.
What is pre-foreclosure and how does it benefit investors?
Pre-foreclosure is the first step of the foreclosure process. It starts when someone falls at least three months behind on their mortgage monthly payments. At this point, their lender informs them that if they don’t catch up, they’ll enter foreclosure and the bank will repossess their property.
Foreclosure is the worst-case scenario for a property owner. Not only do they lose their property, but they also forfeit all of their equity and the process severely affects their credit score. Someone who is in pre-foreclosure only has two ways to avoid this fate: they can catch up on their mortgage payments or they can sell their property.
Catching up on mortgage payments is rarely an option. If it was, the property owner wouldn’t be facing foreclosure. Therefore the owner will most likely be required to sell. The problem with selling a pre-foreclosure is that the property owner usually has a very little time before the house enters foreclosure. They rarely have time to fix issues with the house, contract with a real estate agent, list on the MLS, and then wait through a lengthy closing period.
Instead, the owner needs a fast, convenient way to sell as soon as possible. Many times, this convenience is worth a lower price on the house, creating a great opportunity for real estate investors. If you can present a cash offer and a quick closing, you have a very good chance of buying a house for much less than it’s worth.
What do pre-foreclosure property owners need?
The most important thing to keep in mind when making offers on pre-foreclosures is that property owners need to pay off their mortgages. Otherwise, they have no reason to sell. If they sell their property for less than their remaining mortgage balance, which is known as a short sale, they’re still responsible for coming up with the money to pay off the rest of their mortgage.
In fact, conducting a short sale is rarely possible because the mortgage company won’t allow the property owner to sell the asset without paying off their mortgage in the process. This means that before you buy a pre-foreclosure, you need to understand how much the owner owes on their mortgage, how much the property is worth, and if the owner has any involuntary liens. This information is crucial to calculating how much you should offer for a property.
How to find pre-foreclosures and make smart investments
When a homeowner defaults on their mortgage, the lender will typically issue a notice of default. This is a public notice, meaning that pre-foreclosures are public records. By searching your county’s public records office, you can find pre-foreclosure homes before they hit the market, giving you an advantage over the competition.
The downside to using a public records office is that their websites are often clunky and slow. You may even be required to pay a document processing fee for each record you pull. Even then, you’ll likely retrieve incomplete records that lack the key property information you need to make informed decisions.
If you want to quickly find a lot of pre-foreclosure properties along with detailed property and owner insights, then real estate lead generation software is your best option. For starters, the right platform will make it easy to find the properties you’re looking for. All you have to do is search your market for houses in pre-foreclosure, then save the list.
You can then skip trace the list to find property owners and their contact information so you can launch marketing campaigns immediately. If you want to leverage pre-foreclosures in your market to wholesale properties or build your portfolio this year, then using a real estate platform will be the most efficient and effective option.
For more information on how a real estate lead generation platform will help you find and capitalize on pre-foreclosures, check out the video below.
Buying pre-foreclosed homes can be a great way for real estate investors to obtain assets at a significant discount. Because the owners of these properties need to sell quickly, they are often willing to accept lower offers in exchange for convenience and a quick closing.
However, it’s important to remember that there’s no such thing as a completely safe investment. When you buy a home that’s in pre-foreclosure, it can come with risks and uncertainties, including undisclosed repair needs and potential title issues. Therefore, it’s crucial to do your due diligence and thoroughly research a property before you make an offer.
As long as you’re careful, pre-foreclosures can be a great way to start investing in real estate. Not only are they the simplest motivating factor to understand, but the uncertain economic environment also makes them very timely. If you can find these properties consistently, then there’s no better time to start using pre-foreclosures to build your way toward financial freedom.