Save 40-70% on Your Next Rental Property with a Pre-Foreclosure

Written on November 25, 2013 by , updated on January 5, 2016

Buying Pre-ForeclosuresBuying pre-foreclosed or foreclosed properties can be an inexpensive way to acquire rental properties and maximize monthly profit.

We’ve all heard about buying properties for “pennies on the dollar”. Sometimes it’s true, but usually not.

Many times, you can find and buy a property at a 40%-70% discount by searching through pre-foreclosures or foreclosures.

What is a Foreclosure?

A foreclosure is a property, which has already been assumed by the bank, and will be sold on the fair market or through public auction.

A foreclosed property has to go through a very detailed legal process in which lenders reclaim properties from borrowers who can no longer pay their mortgage.

What is a PRE-Foreclosure?

A pre-foreclosure is a property in the early stages of being repossessed due to the property owner’s inability to pay an outstanding mortgage or tax obligation.

The homeowner is still rightfully in possession of the property, but may not be for very much longer.

State Laws Vary

Like most housing issues in the US, the foreclosure laws vary from state-to-state, and homeowners often have redemption periods in which they can reclaim the property.

To further complicate things, the amount of time it takes to foreclose on a property is different in each state as well.

Pre-Foreclosures Offer High Potential ROI

Property investors can use these complex legislative rules and lengthy processing timelines to their advantage by finding homes that are in the beginning stages of foreclosure (i.e. a pre-foreclosure), and then offering to buy the house quickly and directly from the homeowner.

It can be a win-win for both parties.

The homeowner wins by:

  • preventing a foreclosure,
  • avoiding subsequent ruined credit,
  • preventing a deficiency judgment. Yes, in some cases a lender can pursue the previous owner for the remaining debt after the sale of the foreclosed property.

The investor wins by:

  • buying a property before other investors get the opportunity,
  • avoiding a lengthy process of dealing with the government or lender to buy a bank-owned property,
  • being able to help someone in a dire situation.

If the investor offers to buy the property with cash, the process might only take days instead of months, like a foreclosure does. Not to mention, the distressed homeowner may accept an offer that is significantly less than the property’s value simply because they need money quickly and cannot wait 54 days (national average in Oct 2013) for the property to sell through an agent.

Choose Wisely

You must choose wisely...

You must choose wisely…

In many cases, the homeowner has a significant amount of equity in the property, but has simply lost his/her job or income – thereby preventing them from paying their debts.  This is your ideal seller.

When you locate this type of property, contact the homeowner and try to make a deal with them to purchase the home.

You want to try an avoid houses that are over 100% Loan-to-Value – for example, a 200k house with a 300k mortgage has a LTV of 150%.

Remember, just because something is discounted, doesn’t mean you should buy it.

If the house is underwater so deep that it’s hanging out with the Titanic, then it’s probably not a wise purchase.

If you do your research, you can save a lot of money on a property that you would have bought anyway.

Start Researching

Below is table that outlines the state foreclosure laws throughout the United States.

The nice folks at Foreclosure.com put this information together. Foreclosure.com is the tool that I use to find pre-foreclosures and discounted properties.

AlabamaMontana
AlaskaNebraska
ArizonaNevada
ArkansasNew Hampshire
CaliforniaNew Jersey
ColoradoNew Mexico
ConnecticutNew York
DelawareNorth Carolina
D.C.North Dakota
FloridaOhio
GeorgiaOklahoma
HawaiiOregon
IdahoPennsylvania
IllinoisRhode Island
IndianaSouth Carolina
IowaSouth Dakota
KansasTexas
KentuckyTennessee
LouisianaUtah
MaineVermont
MarylandVirginia
MassachusettsWashington
MichiganWest Virginia
MinnesotaWisconsin
MississippiWyoming
Missouri
photo credit: cmjcool via cc
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3 CommentsLeave a Comment

  • Josh Wardini

    Hey Lucas,

    I’m walking through your process in this article and have located a potential property on foreclosure.com that meets all necessary criteria. I found the owner through various social media channels and I’m going to contact them.

    Given this is more then likely a person under stressful circumstances could you advise as to the appropriate way to reach out to them. Would a letter, email or phone call be most appropriate. If letter or email do you have a template that you use?

    Thanks for great content as always

    • Lucas Hall

      Hey Josh,

      It’s good to hear from you again.

      It’s best to start with a phone call. Do your best to make sure they realize that you are not some telemarketer trying to sell a refinance (because they’ve likely received a few of those).

      If they are open to talking, then feel free to have a long discussion. If they are not open to talking, ask them if you could stop by sometime this week. Maybe they just need time to think about the idea or their not comfortable with phone proposals. I find that older people typically prefer face-to-face conversations – no matter the topic of discussion.

      What you want is a real conversation with them, a back and forth dialog, as if you were friends.

      There are two TV shows that are helpful. American Pickers and Pawn Stars.

      In American Pickers, the two pickers approach a strangers house and give them a piece of paper with a list of items on it. They act friendly, but also are very honest as to why there are there. You need to explain the reason you are calling within the first 30 seconds – and be able to give them a list of benefits for them, as well as what you want.

      In Pawn Stars, the shop owners always let the seller come up with a price first. Then, no matter what the seller says, the shop owners usually offer 33%-50% of the mentioned price. Then, they meet somewhere in the middle, and everyone is happy. But offering 50% less takes finesse and guts. You have to do it gently and respectfully, or you’ll lose them.

      In the end, keep in mind that some people are so emotionally tied to their house that they are going to go down with the ship no matter what. Even if you offered them 120% of it’s worth, they still wouldn’t take it.

      Good luck. If the first one doesn’t succeed, try again. Let me know how it goes.

  • Elizabeth

    I’m looking for a pretty foreclosure rental property. How do I find a realtor or management company in my area, (Fl) who deals with these kind of rentals. I know the risks but this is the route I want to go and am aware of the risks.
    If I can’t find someone who deals with these properties, I know how to look them up myself and find out if they are vacant. If I find a pretty forclosure on my own, in your opinion and with your ecperience, what is the best way to approach the home owner (convince) about renting to me? I think recieving income for their home is better then receiving nothing. I’m displaced due to hurricane Irma so I really need your help. I have a great rental history! Thank you!

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