One of the quickest ways to become successful in real estate is by choosing an investing niche. Everything from investing in mobile homes to focusing on commercial buildings can be a potential niche. Your niche should be something that you enjoy and see long term potential in. A popular example over the past few years has been with pre-foreclosure investing. This focus is on homeowners who have started the foreclosure process but are still a few months away from actual foreclosure. What makes this so popular is that you are dealing with homeowners who are motivated to act quickly. Deadlines often spur action and this is certainly the case with this real estate niche. If you are interested in pre-foreclosure investing here are a few things you need to know.
- Increased Competition. Investing in short sales and foreclosures was extremely popular at the beginning of the decade. Banks were looking to liquidate their assets and would often take 60 cents on the dollar to do so. As the real estate market has stabilized, lenders are not as desperate to sell blindly. That being said, no lender wants a foreclosure and are willing to sell at a discount to avoid one. Many investors are aware of this and have made this their focus. If you are interested in pre-foreclosures, you need to know that there will be competition. Anyone can purchase a list of homeowners who are ninety days late on their mortgage or have filed a Lis pendens. They will send out postcards, letters, and make every attempt to reach the homeowner. You need to find a way to stand out from the crowd. If you can find a way of marketing to reach homeowners, pre foreclosures can be a lucrative niche for you. If not, you may end up wasting money on lists and letters that don’t yield the results you are looking for.
- Understand The Process. As the name would indicate, a homeowner in pre-foreclosure is just one step away from actual foreclosure. A foreclosure is one of the worst things that can happen to a borrower’s credit. In addition to the damage on the credit report, it can make it difficult in to find future housing or get a car loan. With a foreclosure, the homeowner is forced to leave their property at a designated time and date in the future. This is not easy for all parties involved. If you plan on making this your niche, you need to research exactly how the process works. As soon as a lender hits either 90 or 120 days late, they can begin foreclosure. When this happens, the homeowners loses the option of paying one month’s mortgage payment. To get current on their mortgage, they now need to pay the total amount of what is owed. This is the first hurdle they have to face. Every month they cannot make the payment, they face late fees and penalties that continue to add up. They also receive constant phone calls and letters from the lender providing them with options that can be confusing and intimidating. Here is where you can step in as an investor but you need to know the process before you do so.
- Homeowner Options. When a homeowner is in foreclosure, their options get slimmer with each passing day. The first option is to pay the total amount due. The government has provided a few alternatives that may make sense. They can apply for a loan modification or see if they are eligible to sell the house at a loss with a short sale. To do so, they need to complete an application package supplied by the lender. If approved, they can make the new modified payment and retain the property. If a short sale is their only option, they can need to put their house on the market with the sale subject to lender approval. The foreclosure process does not stop while the homeowner is looking for options. Here is where, as an investor, you can make an offer to the seller so that they can avoid foreclosure. As bad as a short sale is on the credit report, it is not nearly as bad as a foreclosure sale. By knowing and presenting the homeowner with all their options, you can build a rapport and ultimately get more deals.
- Time sensitive. Pre-foreclosure deals are time sensitive. You want to secure the deal before it reaches foreclosure. Once this happens, you will be at the mercy of the lender and the local state laws. If the property is in an auction state, a date may be set for auction. If not, you may need short sale approval that can add several months to the process. As an investor, you walk the line between pushing to hit your dates and being pushy. Regardless of the goal, you need to make the homeowner aware that the process is very time sensitive. Missing a crucial date can mean the difference in approval and foreclosure. Pre-foreclosure deals are as much about hitting dates and staying organized as what you offer on the property.
Pre-foreclosure deals take knowing how to talk to a distressed homeowner. You need to think about the process from their point of view and what you can do for them. Like anything else, the more experience you have the better you will be. Pre-foreclosures are a great niche to be a part of, as long as you know everything they entail.