Article of the Month for September 2001
The Terrible "R's" of Foreclosure
Making money by dealing in real estate is a complicated, full-time task. The profits realized are a consequence of buying it wholesale, fixing it wholesale and reselling it yourself.
Buying a foreclosure therefore, is not the whole story - it's just the beginning of the buy/sell profit cycle. If you become an expert at foreclosures though, you'll enjoy a hefty "up front" discount that's unavailable via a regular purchase. That means you won't have to hold the property and depend on future appreciation and/or fix-up to make your profit.
But again, foreclosure expertise is not the only skill required to complete the buy/sell cycle - it's just one component of the following Terrible "R's":
Raising cash - appears to be the biggest hurdle, at first. But of all the skills necessary it's the easiest to solve. A successful record of only 2 or more deals is all the average, potential co-investor will require. The caution here is to comply with state/federal securities regulations regarding solicitation rules and disclosure requirements.
Research - entails the skills necessary to ferret out the exceptional "buys". It can be as simple as relying on an honest, aggressive real estate agent - to being your own expert in every kind of forced sale situation.
Repossession - deals with the skills necessary to gain possession of the property from the previous owner or tenant. The most effective techniques usually involve some sort of informal move-out reimbursement coupled with a few extra days leeway.
Rehabbing - can get quite complicated, but it amounts to staying on top of the best sub-contractors available, and determining what amenities and decorating touches are currently in vogue. Most of the time you will sell quicker, and for more money, when you doll it up.
Refinancing - is becoming incredibly involved, but it's absolutely vital to be on top of the many loan programs, sources and private profit sharing/pension trusts to "crank" the property. Recycling your limited cash into foreclosure after foreclosure during a major market break is where the real bonanza lies. But such money sources have to be lined up beforehand so that no time is lost when it really counts!
Reselling - costs can really be minimized if you know the "tricks" of the trade and what financing structure is successfully working in the market at the time. Attract-ing buyers involves flyers, open house showings, newspaper classified ads, multiple listing exposure and an appropriate "For Sale" sign.