Finding and Buying Foreclosed and Distressed Real Estate

I’ve been asked a lot lately about buying Spartanburg foreclosures and Boiling Springs foreclosures. Was there an infomercial running on late night tv recently that I missed? I did hear one on the radio how you can get a 4 bedroom 2.5 bath house with over 2,500 square feet for only $3,500 US dollars! Wow what a deal. I’ll take a few of those thank you!

That last ad was in reference to local county tax auctions by the way. Anyway, the Boiling Springs and Spartanburg area has recently been listed as the #2 real estate market in the country. However, as stable as our housing market has been that is not to say there isn’t a deal to be had now and then. Below is a re-post of a foreclosure report I wrote about 2 years ago that is just as valid today as it was then.

One truth to real estate is that the best deals sell the fastest. What appears to be a great deal to you probably appears to be a great deal to somebody else as well. Will “somebody else” get to that deal before you do? Most full time Realtors watch the market daily for new listings and price reductions that will interest a qualified buyer they have waiting in the wings. Without spoiling the plot too much, working with a full time, experienced Realtor to find deals is clearly the most efficient way to invest in real estate.

Here is the foreclosure buying report once again:

You’ve seen the commercials with a guy sitting by the pool with a Hawaiian shirt and
tropical drink. He’s telling you how easy it is to earn MILLIONS from buying foreclosures
and how you can too. Ah, the wonders of real estate investing. But is this portrayal of
the foreclosure investor accurate? For most, it clearly is not. However don’t fret; the
following information will give you an understanding of buying and profiting from
foreclosures!
There are many ways to buy a foreclosed property with all of them having advantages
and disadvantages. Let’s discuss the benefits and detriments of each.

Foreclosure Auctions

Buying foreclosures at auction has two main advantages:
1. The Bidding Starts Low, Instead of High When you’re negotiating to buy a
foreclosure directly from the bank, negotiations usually start at the homes’ full appraised
value; you then negotiate to lower the price. At auctions, the opposite happens. The
auction starts at the minimum value (usually, the balance owed) and buyers bid the
price up. It’s a subtle difference, but it can have a big effect. You and the other bidders
decide what the property is worth, not an appraiser. Depending on who else is bidding
on the home, you may have a good chance at a great deal!
2. There May be Less Competition Another important advantage is the potential for
reduced competition. With publicly listed bank owned foreclosures, you’re competing
against the entire market investors, homebuyers, institutions. At an auction, on the
other hand, you’re only competing with those that show up on the day of the auction.
Occasionally, weather conditions will cause only a few to show up and you can purchase
a property at a great price. Similarly, if a lot of properties are being auctioned, not
everyone will do their research on every property. Therefore, you may know something
that no one else does and still be able to pick up a great deal.
There are 4 major disadvantages of foreclosure auctions:
1. Auctions Require a High Down Payment (5% to 10%) To
discourage high bidders from walking away from their purchase commitment, auctions require a high,
nonrefundable binder. It’s usually 5% to 10%. Depending on ones budget, losing 10%
of a $100,000 bid can be a serious financial risk or worse, loss. Because this down
payment, called a binder, is nonrefundable, it is essential that you do your homework
before you bid.

2. There is Limited Time for Research Because county governments generally release the sale lists only 3 weeks before the auction there is not a lot of time to do your due diligence. Researching what properties are available, narrowing the list to the properties you are actually interested, and doing your homework on those homes can
become a full time job in those 3 weeks or less. Therefore, it is important to understand
your available time and schedule commitments before getting in too deep. Another
challenge will be determining the amount of repairs needed to resell the home or make
it livable. Many repairs cannot be found with a simple walk through and in most cases a
professional inspection is not cost appropriate based on your chance of being the high
bidder.
3. The Property Might Come With Additional Liens – Sometimes when buying a
home at auction, the home comes with additional mortgage and tax liens. First
mortgages, federal and state tax liens, and others can potentially ruin the profits that
you are hoping to gain when buying this foreclosure. So unless you perform a title
search on each potential real estate investment, you may be buying a whole lot more
than you bargained for.
4. You Will Be Competing With Full Time Real Estate Investors – If you know that
a property is a great deal, there is an excellent chance that most of the full time,
professional real estate investors in the room know it’s a great deal too. After all, they
wouldn’t be full time investors very long if they didn’t know the market well. However,
although most investors are looking for a great deal, if you are buying a home to live in,
there is a good chance you are willing to pay a little bit more than somebody looking for
just a great investment.

Pre-foreclosure Properties

Preforeclosures have 2 main advantages:
1. It Can be “WinWin”
If you find a home owner who is behind on their mortgage payments you might be able to buy their house for the loan payoff amount or less, preforeclosure. This can be a winwin for both buyer and seller. The seller avoids a devastating foreclosure and you get a great deal.

2. You Can Avoid Competition

The other advantage of buying a preforeclosure is that it can eliminate most or even all of the competition found a foreclosure auctions. Once you start working with a home seller, there is a good chance that they will not
want to work with anybody else.
Preforeclosures have 3 main disadvantages:
1. These Homes are More Difficult to Find – There is not really a list of homes that
are in preforeclosure. You either need these sellers to contact you from your
advertising or you can contact them if you get their information.
2. It May Be Uncomfortable – This type of home purchase requires direct dealings
with the home owner. Most people want to stay in their homes and do not want to sell.
Many will not be polite if you show up on their door step or will tell you the problem is
solved to get you to go away. This type of foreclosure buying will take most people far
out of their comfort zone.
3. It Can Be Very Time Consuming

When working directly with home sellers who are facing foreclosure, you will need to take time to build the trust of the seller. Then you must deal directly with the bank to negotiate terms and price. Banks are often very
bureaucratic and take a long time in negotiations; many never settle at all but let the
home go to the foreclosure auction.

Purchasing Lender Owned Properties:

Commonly called REO (Real Estate Owned) Properties, banks and other lenders take
back properties through the legal process of foreclosure when a borrower defaults on
their mortgage payments.
There are 3 major advantages to purchasing REO’s:
1. These Homes Often Require Less Money Down Because
REO properties are typically sold through the MLS, the property does not usually require that you take the
large financial risk and time investment of purchasing at auction or preforeclosure.
You can often purchase these homes with as little as $1,000 down, instead of the 5% or
10% typically required at auction.
2. These Properties are Easier to Find: A good Realtor can locate all of the
currently listed REO’s in any given market and then forward that information on to you.
This “Team” approach eliminates much of the footwork for you.
3. You Can Make More Accurate Repair Estimates:

Depending on how your Realtor structures your contract, you will most likely have an opportunity to do a thorough home inspection and repair estimate prior to completing your purchase. This benefit is
tremendous! Many, many investors have lost thousands of dollars buy under estimating
the costs of repairs.
There are 2 main disadvantages to REO’s
1. Good Properties Get Grabbed – FAST! – As new REO’s come onto the market,
some are overpriced, some underpriced and some just right. The underpriced homes
typically get snatched up within as little as one day! That is why you’ve got to know
what you want and have access to it, FAST!
2. Third Party Addendums Can Cost You Money!

Many lenders now require the purchaser to sign a third party addendum to the purchase contract. This addendum
protects the lender in the event the buyer does not close in the time frame specified in
the contract. It will usually charge you a per diem amount for every day you go over
the close date specified in the contract. By arranging your financing before making an
offer and keeping your credit clean during this time you should not expect to have any
problems. Make your lender aware that you will be signing a third party addendum and
have them agree to pay it if you are not able to close through no fault of your own.
Summary

For most non full time real estate investors, buying REO properties through an
experienced Realtor® is the best way to buy foreclosed properties. You can get great
deals on properties and be the most protected at the same time. Your Realtor will do
much of the work for you. With the inventory of homes that banks now have, the
opportunity to buy has never been better.
While foreclosures happen in every neighborhood, a great deal is a great deal and those
tapped into the market will be the first to grab up these great deals. That is why it is
critical to be tapped into the market and to have the right Team working for you
The team at www.SearchRealEstateSC.com has bought and sold 100s of foreclosed
properties over the last 5 years. Feel free to contact us when you’re ready to learn
more.
Happy Property Hunting,
Rob
864-621-7900