Brief assessment of Pre-Foreclosure Real Estate Buying Strategies

Insurance Jobs - Brief assessment of Pre-Foreclosure Real Estate Buying Strategies

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In this current economic condition, the ask for a creative real estate investor who knows and understands the dissimilar strategies and options available to distressed homeowners is at an all-time high. While this next decade will bring more economic hardship to more Americans than any other time in our nation's history, it will also contribute more millionaire opportunities for those investors who are able to invest in the knowledge and take action.

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Here is a brief overview of the myriad buy strategies most victorious real estate investors hire to distinguish our buy process from that of realtors.

Wholesale (30%+ Equity)

A wholesale buy is loosely defined as a property that can be purchased at greater than 30% reduction to after-repaired value (Arv). Properties in this category commonly want uncut recovery in order to present them to retail buyers via the multiple Listing aid (Mls). The typical seller does not have the time, money, or inclination to take on an uncut recovery project. Consequently, investors add a principal number of value by purchasing the property at wholesale cost and tantalizing the services of a undertaker of a package deal to present the property for sale at a later date. The role of a seller is to find the property, get it under contract, and then 'assign' the contract to an end buyer for an assignment fee. This fee can be anywhere from 0 to ,000. This strategy is where most beginners cut their teeth because it requires no money or credit to achieve a transaction.

Fix and Flip

Buying a property well below store value, development repairs, and selling conventionally to an end buyer is commonly known as a fix and flip strategy and is an additional one one of the most base ways real estate investors begin their career. The goal of a normal fix and flip is to put as diminutive time and capital venture as potential into the property and resell as fast as potential at the low end of the market. For many handymen and tradesman, this strategy is the next logical progression of their careers.

Short Sale (-10 - Equity)

Short sales are not called such because they are short in time or in paperwork. A short sale is a buy strategy where an investor engages the seller's lender(s) to reduction their lien on the property in order to make the deal more attractive. Banks will commonly reduction a property if you can prove to them that both the seller and the property are in distress.

To prove the seller is in distress, they must show a financial hardship, like healing problems, death of a house member without life insurance, job loss, divorce, etc. Whatever the basic cause, a homeowner will be required to send in the suitable documents in order to demonstrate a hardship to the lender.

In order for lenders to interpret discounting their notes on a property, it commonly needs to be "upside down," or have a negative equity position. It will be the accountability of the Investor to contribute proof that the property is in distress.

Due to all the paperwork and negotiating involved, a victorious short sale can take some months to perform.

Subject-to (0% - 30% Equity)

Subject-to purchases commonly involve a principal number of paperwork and are often misunderstood by sellers and many investors. The simplest way to think of a subject-to buy is to recall the time when notes were fully assumable. Legislation was later passed to discourage or virtually eliminate assumptions so the contemporary day assumption analog is to buy properties subject-to.

To understand the subject-to concept, it is foremost to understand that the deed for a property and the mortgage for a property are two wholly isolate documents. Purchasing a property subject-to plainly means that you take possession by taking the deed subject-to the existing financing remaining in place. The distinction between a formal assumption and a subject-to buy is that the lender for the property does not have to "sign off" on the transaction.

Selling a property subject-to commonly benefits sellers financially. Transaction and keeping costs eat straight through any notional equity that sellers will be left with when they sell. Realtors favorably avoid discussing this with sellers when they arrive at their house to get a listing business transaction signed. The goal as investors is to give the seller the same net profits you would get if you marketed, listed, and sold the house with a Realtor, only quicker. The traditional value that we add is giving you this same number of equity and completing the transaction in 5-7 days instead of the months of work and worry that are created using the traditional sales process.

A subject-to buy is typically used when there is good financing on a property relative to the current store interest rates or the possibility of executing a load modification to make the financing favorable. Properties are typically purchased at less than a 20% reduction to after-repair value (Arv), which equates to colse to the same net sale proceeds using the traditional realtor process. If loans are delinquent or small repairs are needed the investor will pick up the tab along with the minor transaction costs for title assurance and escrow fees.

Contract Assignment (-5% - 10% Equity)

A contract Assignment (Ca) buy strategy is commonly used for properties where the debt is relatively high as compared with the store value of the property. Properties that have between 10% and -10% equity commonly fit into this category. This buy strategy is similar to subject-to described above in many respects. The distinction is that the traditional seller agrees to take the financial burden of development mortgage payments going forward instead of the investor according to do so. Financial gains from the transaction are also borne by the seller. The investor shows the seller how to execute this type of transaction and assigns the contract to a new buyer.

The traditional source of value for the seller in this type of transaction is that it opens the buyer pool up significantly. Instead of having to store the property to a cash buyer that has a adequate down payment and credit rating to buy with third party financing the seller can finance the transaction with the help of an investor professional. Sellers are also relieved of having to bring cash to closings to fund transaction and keeping costs implicit to the traditional sales process

The more you learn about creative ways to buy and sell properties, the more opportunities you will have for wealth. As Sophocles once said, "Wisdom outweighs any wealth." There has never been, nor will there ever be, a good time in America to take activity in real estate!

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