Foreclosure Bus Tours: Foreclose Properties, Short Sales and Investment Property

Foreclosure bus tours are popping up all over the US, especially concentrated in the hardest hit areas like Florida, California and Nevada. The tours offer investors an excellent method to source foreclosed properties and to meet other real estate investors.

Maximizing a Foreclosure Bus Tour

Intelligent investors should definitely consider doing at least one foreclosure bus tour for the experience. While the properties may not be the perfect investments and the competition is obviously high given the fact that competitors sit in every seat on the bus, a tour offers something to all types of investors.

Shop around for bus tours. While this is not a huge industry yet, use the web to find the best tours and make sure to get testimonials and feedback. Don’t expect to go on the tour and find the perfect property. These tours run frequently and given the sheer number of investors looking at the properties, the best properties go quickly, while the worse remain in the pool to be overlooked by other investors.

Do not forget to network. The value of the bus tour will come in meeting other real estate investors and discussing real estate investments. Novice investors can get some hands on tips on how to evaluate a real estate investment property and more experienced investors might be able to find investment partners or future investment sources.

Investors should make sure they have a camera, notepad/pen, an investment checklist (current rents, neighborhood outlook, etc), and a list of key items to review inside the property (i.e., sound foundation, repair needs, deferred maintenance items, big ticket item needs).

Foreclosure Bus Tour Watch-outs

Avoid getting sold on the bus tour. The tour will inevitably be filled with realtors and other real estate product sales people attempting to sell everything from brokerage services to foreclosure seminars. A novice could see their $40 bus tour investment balloon to $1,000+ of classes and products that may not enhance their real estate business.

Also, avoid rushing through an investment analysis. Tours promote group think and investors often get caught up in what other people think of a property. Don’t trust another tour member’s analysis of the market and the property. Take copious notes and complete a thorough analysis before deciding to invest in any property.

Foreclosure tours are a must for every novice investor. Don’t expect to find the perfect investment property, but be open to meeting new people and learning more about real estate investing.

When is a “good deal” not so good??? Foreclosure Finds…

Wow–there must really be some “good deals” out there in the foreclosure marketplace!!! I am constantly being asked to give advice on what is or isn’t a good deal. My answer is complex…you see, what is a good deal for some is not necesarily a good deal for others. Buying a $50,000 home for $25,000 is great–unless the home needs $25,000 in repairs–then it becomes a “wash”…On the otherhand, if you are a construction worker and can do the repairs yourself with minimum cash output–it’s a good deal!!! Clue yourself in to deals that appear to be too good to be true–you know the saying…the same holds true for house hunting. I hate to sound pessimistic but as far as the average investor is concerned–if it was that good of a deal the real estate agent would not be calling you about it–they would have snatched it up themslve!!! Let’s just say…”been there, done that”! One question posed to me this week that I do not often hear is: “What about buying a home by just taking over that payments, no closing costs or anything BUT the LOAN in higher that the appraised value of the property?” HMM–this was a tough question. On one hand there is a financial benefit to not having to cough up all the closing costs..on the other hand, the house is not worth what you are paying for it. The question later stated that the rental income more than covered the payment—that’s a plus… I finally had to come to the decision that this was simply up to the desires of the buyer–how does this improve the investors portfolio? Another thing I advised the buyer to do is make sure there is no secon mortgate on the property–I suspect tht he is taking over the first and second mortgage. Also, make double-darn sure there is an attorney handling the title exchange–even if he has to pay for it!!!

The bottom line–use you head and common sense when making investment property purchases–do not get caught up in the excitement of the process–stay level headed and learn to walk away from properties you do not have a definite handle on!!!

How Real Estate Investors Persuade Lenders to Agree to Short Sale

After a real estate investor identifies distressed property that has the potential to be brought up to habitable condition and that may be the subject of a short sale, the owner and, most importantly, the investor face the tough hurdle of obtaining the mortgage lender’s consent to a short sale.

Traditionally, most lenders have refused to even consider short sales because it means accepting less than the balance owed on the mortgage loan. Although the owner often remains on the hook for the balance due on the loan after the short sale proceeds are deducted, lenders usually have preferred foreclosing on property and then trying to sell it.

The U.S. government’s Home Affordable Mortgage Alternatives program (HAFA) is designed to encourage more lenders to agree to short sales. However, it is too early to know how many homeowners will qualify for HAFA., which went into effect on April 5, 2010.

Steps to Convincing a Lender to Agree to a Short Sale

When approached by a homeowner and prospective purchaser about a short sale, a lender that is considering consenting to a short sale will engage a real estate broker to give an unbiased opinion on the value of the property. According to an article by John Ochi, a California real estate broker, most of these opinions are based on just a drive-by look at the property, and it is only when an investor makes an issue of the inside of a home that the lender has the broker evaluate the interior as well.

The point at which the lender has the broker’s opinion about the value of the home based on both the exterior and interior conditions is when the investor needs to point out as many defects as possible to drive down the market value of the property. The investor should not hesitate to list even the smallest, easily fixed defects, such as missing ceiling tiles or walls that are overdue a painting. (But the investor should not create or fake defects – that amounts to mortgage fraud.)

To bolster the claim of defects, an investor may want to bring in a contractor to look at the property and give a written estimate of what it would cost to make the repairs and renovations that will bring the property up to habitable condition. The contractor’s estimate will also serve as an essential part of the investor’s due diligence in ascertaining the true cost of buying the property.

The last step is the tendering of a reasonable offer for the property. The lender must never get the sense that the investor is not serious about buying the property or that the investor and the seller are conspiring to fool or defraud the lender.

The investor should take the initiative to draw up the sale agreement and present it to the lender early in the negotiation process. By doing so, the investor increases the chance that the final version of the contract will contain many of the terms that are in his or her favor.

Keeping the Short Sale at Arm’s Length

Ochi points out at the end of his article that investors must bear in mind that they are not the ones who dug the financial hole in which distressed homeowners find themselves, and neither are they the ones who made the bad loans for the lenders. Instead, the role of an investor in a short sale is “to make the best of a bad situation for everyone.” Investors should remember this because they will often find that selling a home on the brink of foreclosure is an emotionally wrenching experience for owners.

This article is not meant to include all of the steps and precautions that an investor should take to buy property in a short sale. Short sales are complex transactions, particularly when there are second and third mortgages on a property. Many short sales are never completed, even after months of back-and-forth negotiations and submission of documentation. For these reasons, it is advisable for an investor to consult an attorney for guidance on how to put a short sale together.