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How To Profit From Pre-Foreclosures
Since a pre-foreclosures home has not formally passed back to the lenders as REO bank foreclosures or government-repossessed homes yet. The purchaser (that's you) of a pre-foreclosed home will be negotiated first with the current homeowner. This is where all the profits from pre-foreclosure can happen with a pre-foreclosure purchase. However, this can be tricky when the homeowner is under financial stress or has no interest in selling.
Build a friendly but business-like relationship with the homeowner
If you have strong personal skills and can build a trusting, friendly but business-like relationship with these homeowners, then, by all means, proceed to negotiate! With the right approach, you can help these people consider your offer and avoid the rest of the foreclosure process.
In other cases, the homeowner may be very motivated to get out from under their home and have financial problems by selling quickly. This situation would provide a golden opportunity for the buyer who acts fast to drive up profits from a pre-foreclosure. To be help move the process along quickly, create an earnest buyer profile for yourself on paper, and give a copy to the homeowner right away. It would help if you listed essential aspects about your motivation and ability to quickly buy the house, such as a documented financial statement, funds available, mortgage pre-approval, etc.
Use Professionals to help with your Pre-Foreclosure Negotiation.
We always recommend having a local real estate attorney help you draft a home purchase agreement contract. You can present it to the owner to show you're ready to move ahead quickly. Time is precious in these early stages. Once you find a golden pre-foreclosure opportunity, the average time available to close a deal is 3-weeks or less. Otherwise, the homeowner may either resolve their notice of default or the lender may formally move the home into the foreclosure auctions stage of the foreclosure process.
Get a professional home inspection
Be sure to do a thorough review of the home's condition with a professional appraiser and inspector. Then evaluate comparable sales and current price trends in the neighborhood. Once you consider all repair costs, settlement of potential claims or liens, and the market price points, make a purchase offer at a price that gives you an edge.
What if the homeowner has equity in the home?
In cases where the homeowner has equity in the home, you can offer a below-market offer, even less than the price of foreclosures in the neighborhood. You and the homeowner are likely to make money on the deal still. If no equity is available for the homeowner, push for a discount to market price that will give you an attractive return on your investment.
How to Profit From Pre-Foreclosures
In any case, your profit will be determined by how you utilize the home after the sale. Homes that don't enter foreclosure but are in good condition can offer you the option to become a landlord and lease the home for monthly rent.
Turn your Pre-Foreclosure Purchase into a Rental Unit
The cash flow from rental properties can easily exceed the fixed costs of the mortgage, taxes, and maintenance. This puts cash profits into your pocket every month. Yet another way on how to profit from a pre-foreclosure.
Turn your Pre-Foreclosure Purchase into Fix and Flip
Otherwise, if you factored insufficient funds to refurbish the home, updating it and reselling are options. Be sure you are comfortable with the current amount of time needed to sell in the neighborhood. If it takes too long to resell, you may wind up cutting your price back to the level of available foreclosures and cut your profit as well.
Turn your Pre-Foreclosure Purchase into your primary dwelling
Lastly, you can always live in the home for the long term. Regardless of the state of the housing market, by living in the home for the long term, you can enjoy the privacy, freedom, and comfort only your own home can provide. Then, as equity builds over time, you have locked in a long-term gain for yourself.
So now you know how to profit from a pre-foreclosure purchase. Don't forget to start your search today!