Making Money on Foreclosures

Is this your dream? Have you been thinking about paying pennies on the dollar for homes in foreclosure and then making a mint on reselling? Perhaps you are a fan of James Odell Barnes who is doing full time work on finding foreclosures for a group of investors; he gets a guaranteed $1,000 for every property he finds for the group! Maybe you are thinking that you'd like to be your own boss and get out of the rat race.

Let's say you think you are ready for the "big leagues" because you've been doing some part-time house-flipping, and you are doing pretty good. Not everyone thinks house-flipping is a good idea; I've certainly had my reservations. However, the subprime woes don't apply to everyone. As the saying goes, for every black cloud there is a silver lining.

So, today's post is about the silver lining.

Have you got some money laying about? You really can buy houses for pennies on the dollar, especially with rising mortgage defaults and increasing numbers of subprime lenders going bust. The first trick is finding them.

You can check out HUD's website, and find foreclosures for sale. HUD has a process for foreclosure sale that you will have to go through and they are biased towards "owner-occupant" purchasers, so you won't necessarily find the fastest or easiest deals through HUD. However, if you are just looking for that reasonably-priced home for your family, this could be a great resource.

There are a multitude of other sites on the net, advertising foreclosures for sale. However, if you are looking at a listing, you have to remember that thousands of other are looking at that listing too. Since buying a quality foreclosure is all about finding it before anyone else, most internet sites are not the ideal locations for your search.

Your best bet, if you are willing to do the legwork, is to keep an eye on mortgage loan default documents being registered. Strike up a partnership with local real estate agents, who are also likely to hear about foreclosures. Become an expert in your own geographic location. Be aware that you'll have to be ready to compete with bigger investors, who are also looking for a bargain. In the end, it will be about finding the deal first, and being able to act quickly to secure the property.

There is another plus if you are finding the homes yourself, and are willing to provide a vendor take-back mortgage. The subprime lending sources are rapidly drying up. (However, subprime lending must be seen as a good long-term business: according to an article on Bloomberg, investment company Cerberus has just bought the subprime lending arm of H&R Block. Don't know Cerberus? They just bought Chrysler, so they aren't naive market players.) If you do it right, providing mortgages can be another part of your real estate investment strategy, that provides you with an income stream, and the safety net of reacquiring the home if the borrowers can't make payments.

You'll have to evaluate your borrower carefully. While some may be "duds", some higher-risk borrowers are unable to find a mortgage, even though they can handle the mortgage payment. The group of investors that James Barnes supplies homes to are making their money by providing mortgages at 12% on each foreclosed property. Given the fact that current 30 year mortgage rates are running at about 6 percent, that's a mighty fine mark-up. 

You have to have the right ability to tolerate risk for this business. You have to run it like a business. You have to be able to manage yourself and your time if you are going to get into real estate investing for a living. But there are opportunities here, for those who are willing to get into the game.

Michael Chantrel 

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