REPOSSESSIONS
Although the repossession market
seemed dried up last summer, houses are beginning to appear on
foreclosed lists again. Lender Rob Kramarz with Nationwide
Mortgage (www.seetloan.com) says that this may be the beginning
of another real estate investor boom.
Look for great bargain properties
for sale by HUD, VA, Freddie Mac, Fannie Mae, and Bank-REOs
(acronym for real estate owned). Real estate agents try to
discourage you from repos and switch you to multiple listed
homes. Do not listen to negative remarks about how hard it is to
find a good deal property. Find another agent. Even in the hot
market at the time of this writing, when the average house sells
in less than three weeks, we found two properties for at least
forty thousand dollars under market value.
Paying a listing service to mail
you lists of repossessed properties is a waste of money.
Actually, by the time you get these lists, the houses are
already sold. Many web sites listing foreclosures thrive on the
web for no charge to you.
Take a flashlight with you to view
a repossessed property. With no electrical service and boards
covering windows, viewing dark rooms is tough. A good real
estate agent will have her own flashlight, but you want to see
what you want and not what she wants you to see.
HUD
In our area, new HUD listings post
online late Thursday night or Friday morning. New “Daily’s,”
homes previously sold which fell out of escrow, post Saturday
morning. Properties not sold during the bid time stay listed as
daily’s. Bids, due by the following Tuesday at midnight, must be
submitted by a real estate agent who has completed HUD
registration. Don't waste your time using a Realtor who is not
familiar with selling HUD homes. Any mistake causes the bid to
be rejected. Don't use an agent who says you must bid way over
minimum bid. Find an agent specializing in HUD homes who wants
to work with you on your terms. Many bargain HUD homes do sell
for far more than the minimum bid. Hold out for the one property
which doesn't get way overbid. (I bid about $40,000 under
minimum on our second home owner-occupant mountain cabin.)
We submit many bids and win enough
to make it pay us well. HUD only allows one repo purchase as an
owner-occupant every two years from the date of closing.
Rely on your gut instinct and don't
let your real estate agent unduly influence you. It is not a
difficult process for your agent to make a computer bid. You
need an agent willing to make a few bids to get a successful
bid. This is like winning a lottery, with the odds in your
favor.
Bids must have a lender’s loan
commitment statement. Lenders unfamiliar with HUD requirements
also waste your time. Any mistake causes you to lose the
purchase. Not all lenders understand HUD’s bid, finance, and
purchase process.
When placing a HUD bid, raise your
offering bid to cover some of your closing costs. This means you
get HUD to pay your closing costs and save out-of-pocket
expenses. Also, the higher sales price impacts the market
comparable sales in your favor for sale later. Your purchase
price influences the values of the market area. Keeping prices
higher for active sales during your renovation time protects
your investment potential.
Don't get attached to one
particular property. We placed a bid on a home I loved in Apple
Valley and lost it by a few hundred dollars. The house came back
on the list later, not at all uncommon for HUD repos. But, by
this time, we had already purchased a better distressed
property.
VA
Cleaner than HUD repos, homes owned
by the Veterans Administration are also offered on a bidding
system through real estate agents. The VA partially fixes up
their repossessed homes. The VA sometimes offers vendee (seller)
financing with few processing costs, low interest, and no
prepayment penalty. You do not have to be a Veteran to buy these
easy to qualify for homes.
As of this writing, the VA is
changing the way these homes are offered for sale. This is
another reason you need a real estate agent who stays on top of
recently revised marketing procedures relating to
government-owned properties.
Less known government agencies such
as Fannie Mae, Freddie Mac, FDIC, SBA, the IRS, and GSA list
repossessed properties on their individual web sites. These
properties, rarer than HUD and VA, usually get cleaned and
repaired before listing with real estate agencies with sale
prices closer to market value.
REOs
Banks often offer their real estate
owned—REO homes at bargain prices. Depending on the bank’s
resale policy, conditions of the property, and available
financing, REO opportunities vary widely. Several banks lend on
their repos while other banks just want out. Great financing
becomes possible through the banks who offer in-house terms. Ask
for no points, minimal loan costs, and no prepayment penalties.
Check with your local lending institutions and find out how they
market their repossessions. Many of these bankers will give you
their web page listing available property. Befriend real estate
agents who specialize in listing bank-owned repossessions so
they will notify you of a new listing immediately.
Multiple Listings
It is hard to find a bargain in
multiple listings, but not impossible. Check out listings which
have been on the market for awhile. Look for vacant houses, as
these cost the seller money every month. Make an offer for much
less than asking price with a quick escrow. Many anxious sellers
jump on an offer if they think they will be out of their problem
in only ten days. This is another reason you need a lender and
an escrow officer who perform fast.
I follow the multiple listings in
our area on the Multiple Listing Service. One of my agents
emails me new listings daily. You need an agent who calls you
the minute a new distressed property listing becomes available.
Under-priced listings mostly get snapped up by the real estate
agents and their investors before they hit the market.
Just like making many bids, make
many offers. You never know when a seller’s problems reach a
critical point causing abrupt action.
For Sale by Owners
Houses for sale by owner may not
always be a great buy, but there is always at least one bargain
out there. Many investors prefer buying directly from the owner.
If you have ever tried to sell your home by yourself, you
probably met some of these investors. Cruel, hard, and in some
cases, fraudulent investors dream up all kinds of schemes to
steal houses from distraught homeowners. Understand that the
home seller most likely dealt with these callous investors
before you and therefore may view you with suspicion. Earn their
trust by working with them honestly and compassionately.
Seller’s Motivation
Let honesty and kindness guide your
actions with sellers. Finding out the seller’s specific problem
is the key to helping them and yourself. Uncover the seller’s
particular need and find a solution. Because it is embarrassing
for some sellers to let you in on their troubles, extra sympathy
and relaxed timing helps you unearth their underlying
motivation. Listen carefully, stop talking, and pay attention to
details which lead to understanding the real reason they need to
sell.
The seller may need a quick escrow,
need to rent back the home for a while, or want immediate cash.
You could give the seller a loan of cash with a note secured by
the property. Ask an attorney about your state laws regarding
this type of purchase advance. We offered a seller a $2,000
deposit outside of escrow, which went toward the down payment,
to entice a money-hungry seller to commit to our low price.
Many sellers do not need all of
their cash out. Owner financing is a great deal for you.
Usually, you get a lower interest rate and you don't have to pay
lender’s points or prepayment penalties. Also, these loans
typically won't show on your credit report so you won't have
these payments counted against you. If you have a good credit
report, take a copy with you to show to the seller. This
prevents more inquiries on your credit history and keeps your
credit score from dropping.
Ready to Buy
Be prepared to make an offer
immediately when you find a bargain. Make sure you are
pre-approved with a great lender who can close quickly.
Distressed sellers and fixer houses
offer you a great way to get into the real estate investing
business.
(c) Copyright
2004, Jeanette J. Fisher. All rights reserved.
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