As an investor, you are only as good as the quality of leads you can generate. However, too many new investors try to master too many lead sources, and get lost in doing so. They eventually fail to gain traction with any one specific strategy and end up disappointed with the results. One of the best lead sources for investors – old and new – is with homeowners in pre-foreclosure. This is a stage when homeowners are anywhere from 60-120 days late on their mortgage, and before the actual foreclosure process begins. By reaching homeowners at this point, you greatly increase your chances at finding a deal. Their motivation to sell is escalated. Here are four of the best reasons to start looking at pre-foreclosures as a source of deals:
Motivated sellers: Time is your most valuable asset as a real estate investor. Don’t waste it. Instead of wasting time talking to sellers that may or may not be interested, talk to homeowners that are at risk of going into foreclosure, and highly motivated. These are people who are currently having trouble paying their mortgage. This could be caused by a loss of job, injury or an inability to fill a rental vacancy. Regardless of the scenario, a foreclosure is likely impending. Subsequently, once a foreclosure hits, the process becomes a stain on their credit report. The property also becomes more difficult to sell. Not every homeowner in pre-foreclosure will be interested in selling, but you will have a much better chance at getting a deal done in this niche than almost any other. The leads that you work on have a genuine need for your help and it is up to you to close the deal. Instead of wasting time with sellers that drag their feet, you have sellers that have a real deadline.
Deal directly with homeowner: The foreclosure process is still a mess. In spite of the best efforts made by lenders and the government to expedite the process, it is still riddled with problems. The best way to avoid dealing with it is to find homeowners before it starts. As the name suggests, pre-foreclosure homeowners are late but not quite in foreclosure yet. This means that they have many more options that homeowners in foreclosure do not. They can sell directly to you without needing approval from the courts or the lender. If there is equity in the property, they can sell to you as quickly as it takes them to find somewhere else to live. If there is no equity, you can begin the short sale process. This process is much easier, and quicker, if a foreclosure is not started. The sooner you can get a homeowner to commit, the smoother the process will be for everyone. You can close a deal during foreclosure, but it will be littered with red tape and will need the approval of many people.
No auction necessary: Foreclosure auctions have gained a lot of momentum in the last few years. Depending on the state you invest in, a property may go directly to auction once the borrower hits foreclosure. At that point, you will be competing with every other investor in the area. By reaching homeowners before foreclosure, you have an exclusive window to negotiate with them. This doesn’t mean that they won’t get inundated with literature and phone calls from other investors, but you may have the inside track. The quicker you can reach a homeowner – once they are late – the better chance you can build a report and close the deal. There are many ways to find lists of local homeowners 30, 60 and 90 days late on their mortgage. Foreclosure lists may seem like a good idea, but with increased profits comes increased demand. Many local investors are chasing after the same handful of foreclosure deals. Instead of competing against fellow investors, get the jump on your competition by getting homeowners before they hit foreclosure.
Better quality of property: In recent years, it is not uncommon for a property to be in foreclosure for months. There are many things that a homeowner can do to stall the process and buy some time. During this time, they can live in the house without recourse. Because they know their options are limited, they won’t treat the property the same way: instead of repairing or replacing items that need to be fixed, they will simply put a band-aid on them. This can get them through the next couple of months, but may cause long term damage. In general, most properties that hit foreclosure require much more work than those who do not. You may be able to get these properties at a discount, but most of the steep rebates are long gone. Pre-foreclosure properties don’t need as much work and can be turned over in a matter of weeks. This has an obvious impact on your bottom line. Instead of paying for work after you wait months to take ownership, a pre-foreclosure gives you a better property in a much shorter amount of time.
The longer you are in the business, the easier it will be to fall into a niche of your liking. There are many different ways to generate leads and grow your business. Investing in pre-foreclosure leads is a good place to start. Closing deals is still a numbers game, but with pre-forclosures you know you have an interested party. Instead of trying to be a jack of all trades, focus on one niche and make it your own.