The Foreclosure Report

Tips On Buying Distressed Homes

Forbes has an article on 'foreclosure hotspots.' "Turns out, plenty of homeowners are suffering despite the recent boom in house prices. According to data service that tracks delinquent mortgage holders, at the end of April there were 87,582 American homes in some phase of foreclosure. Though nationally the number is up just 2.6% from six months ago, in a few cities, foreclosure filings have jumped up by 26% and more."

"If you’re flush and hoping to get in early on what may be a bear market in real estate, there may be an opportunity for you in all this."

"On average nationally, there are 29 houses in foreclosure for every 100,000 U.S. residents. But at the top of Foreclosure.com’s list, in hard-up cities like Cleveland and Detroit, the rate is several times that. Even some higher-growth cities, including Dallas, Houston and Oakland, are seeing high rates of foreclosures."

"And rapid growth in new foreclosure filings threaten to put other high-growth cities like Las Vegas, Sacramento and San Diego into the above-average camp."

"Brad Geisen, a long-time investor in distressed homes, has a few tips for beginners thinking of making unsolicited offers to distressed borrowers. For starters, focus on a neighborhood you know well, maybe the one you live in, so you’ll have a rock-solid sense of local property values. If you’re lucky enough to find a homeowner willing to sell, they’ll want to close fast, and there won’t be enough time to research the neighborhood."

"Consider working with a 'hard equity lender,' who specializes in making loans to vulture buyers. They charge higher interest rates than local banks, but Geisen says the higher cost is usually justified by the guidance and advice they offer. 'It’s a second set of eyes on your deal,' he says. Your local mortgage broker should be able to refer you to such lenders."

"Get ready to work the phone, a lot. Geisen says the vast majority of distressed purchases happen well before the bank actually repossesses a home. You’ll have to find and cold-call homeowners who’ve been flagged as delinquent or who are still in the early stages of foreclosure, and you should expect to work on at least a dozen different homes before you hook a deal. In most cases, the best way to contact the homeowner is by telephone. Letters don’t work. 'You have to make personal contact,' he says."

"And be gracious. 'Offer to help them find a lender or an agent first,' he suggests. It might mean losing a potential sale in the short run, he admits, but a distressed homeowner is more likely to seek a deal with you later."

"Don’t waste too much time on how-to books and seminars. Most of them are 'OK for motivation,' says Geisen, but they don’t contain the genuinely useful knowledge of how to get a distressed purchase finished. That you’ll have to gain yourself, most likely by the first 14 or so deals you fail to close."

"One absolute no-no: Buying property sight unseen. Another: Taking it personally when deals fall apart. 'If you’re bidding a property up because you’re frustrated or you’re really trying to beat the other guy, you’re going to end up overpaying.'"

"A good lesson to remember, since more than likely, overpaying is what got the guy you’re buying property from in trouble in the first place."

posted by Ben Jones @ 1:04 PM