3 Ways To Profit From Foreclosed Homes
By Judson Voss
February 17 2010
In today's real estate market it is difficult to hide from the fact that foreclosed homes are quickly becoming a large part of the available inventory on the MLS (Multiple Listing Service). Real estate investors who in the past have primarily looked to other sources for their deals are turning more and more to foreclosed homes and working with banks as a way to profit.
I find that many new investors get very excited about the prospect of finding a really great deal on a foreclosed home and they are giddy with the thought of making big money on these homes and will soon retire from their current jobs. You may find currently that your biggest hurdle is finding these homes. We are going to take a unique approach to finding foreclosed homes and that is by starting with how we are going to profit from these listings.
Probably the most common way real estate investors would expect to make money from foreclosed homes is by purchasing the home and selling it for a profit. We have purchased many homes this way and have done well with them but you should keep in mind that there is work involved in flipping homes. Very rarely will a bank sell you a great home in a great neighborhood for far less than what it is worth. Instead as a real estate investor you are going to need to bring value to the deal.
In many instances this means purchasing a home in need of repair and fixing it up below the cost for the average homeowner to make the home more appealing and worth more on the open market. If this strategy appeals to you make sure you have looked at all of the angles and understand construction, managing contractors and also realistically calculate your holding costs. Currently FHA guidelines require a home to be owned for at least 3 months by one owner before an offer can be written on the home. This means even if you can repair the home in 3 weeks you be paying the mortgage payments for a minimum of four months before you can sell the home to a new owner.
Possibly the thought of purchasing foreclosed homes with the hopes of selling them quickly in a somewhat stagnant real estate market concerns you. If this is you then you may want to consider the power of residual income. With some due diligence and effort you can identify and negotiate a reasonable discount on a foreclosed home with the banks to fix up and keep as a rental property. The great news about rental properties is 3 fold. First of all you have the monthly residual income from the rent, secondly there are tax benefits involved with holding investment properties long-term (speak with your accountant) and lastly we are seeing record low prices on homes. In the future it is very likely the homes you purchase today will be much more valuable and you can profit after holding these homes that cash flow today.
At this point you may be saying to yourself, "ok, we have learned to buy and sell foreclosed homes and how to buy and rent out foreclosed homes. This seems to be the only two ways to profit from foreclosed homes, what am I missing?"
The third way to profit from foreclosed homes is a method few new investors consider but is perfectly suited for the newer investor or the investor without a lot of money or available credit to purchase foreclosed homes, wholesaling.
Wholesaling is a method in which you find a home, negotiate a significant discount on the purchase price of the home and then sell the home to investors. In this case unlike buying, fixing and selling a foreclosed home we are going to only get it under contract and then through many different, more advanced methods, sell the home to another real estate investor for them to fix, and sell or rent.
The key to wholesaling foreclosed homes is to understand the process in selling these homes to others and also building your list of potential buyers. Nothing is more scary than putting a home under contract that you intend to wholesale without having any idea who you will sell it to. Find qualified investors first and know what they want to buy and it will be much easier to find the right foreclosed home to wholesale. Wholesaling is not as profitable as selling a fixed up home but you will also have much less risk and need less cash and credit to do the deal.
These three ways to profit from foreclosed homes should get you started down the path to profits in one of the best foreclosure markets we have ever seen. I highly recommend that you spend a significant amount of time deciding what profit strategy is right for you before looking for foreclosed homes. Knowing this will help you narrow down your search and pinpoint just which foreclosed homes are right for your real estate investing business.
For more information on profiting on foreclosed homes watch our show, The REI Minute http://www.thereiminute.com/episode-2-hud-opens-the-forelcosure-floodgates for news, tips and how-to's.