need guidence.. Please anyone.
Hi, fellow investors I'll give it another shot although my last few posts went unanswered maybe someone will be nice enough to help me on this one. I am a 25 yr. old medical professional and work fulltime. I also attend a University fulltime Hoping to get my MBA some day! Real estate investing has fascinated me for quite some time however, I've just never had the the guidance or the nerve to buy a property at a foreclosure auction. I have about 30k cash and about 80k line of credit. Is foreclosure investing the way to go or Should I focus on something else. I can take risks but I don't want to take stupid risks like I did in th 2000 stock market when I lost all my savings. If there is someone in Califonia willing to partner up or just help me out, please do. 
jthiara,
I'm a newbie like yourself. From the reading that I've been doing many of the experienced RE investors say that foreclosure investing is the higher risk of all REI strategies and most do not recommend starting with it. Most will recommend wholesaling as a way to build up experience in the RE market.
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Real estate investing has fascinated me for quite some time however, I've just never had the the guidance or the nerve to buy a property at a foreclosure auction. I have about 30k cash and about 80k line of credit. Is foreclosure investing the way to go or Should I focus on something else.
jthiara,
For some years now I have been investing in foreclosure properties. I used to attend voice auctions but I was never able to buy a property because auction fever usually pushed the bids higher that what I felt the property was worth to me.
Since 1986, I have only bought foreclosure properties that did not get sold at the auction. These properties are now bank REOs or government owned properties. By bidding on these properties, I can make sure that I never pay more than what I feel the property is worth, and I do it all in my spare time. Since your spare time seems to be very scarce, you may find this avenue to foreclosure investing more suited to your schedule.
You don't say why you want to invest in real estate -- that is what will you do with it once you get it? If you want to be a landlord, then foreclosure properties can be excellent rentals. If you are looking to flip properties for a quick profit, then foreclosure properties probably will not generate the profits you are hoping for.
Perhaps if you could give us a little insight into your "exit" strategy for the real estate you acquire, we would be able to give you more focused answers to your questions.
dstanley and David thank you for your replies. I want to get few rentals and maybe try the flipping strategy as well. I have been to several foreclosure auctions at the courthouse in Yuba City, Ca and no one was there except me and the prices sounded attractive the only problem was that I didn't have any money back then. So is it possible to find good deals at the courthouse especially when you are the only one there to bid? Also I've heard something about shorting or something is that when you try to cut a deal with the bank that gets the real estate after a foreclosure? Also is the highest bidder at the auction responsible for the senior liens as well excluding tax liens? Any answers will be appreciated. This forum board is an excellent place to learn about rei so thank you everyone for posting.
David wrote: If you are looking to flip properties for a quick profit, then foreclosure properties probably will not generate the profits you are hoping for.
David, would you elaborate on this comment a bit more please? Why won't foreclosed properties generate significant profits?
-andrea
<<I have been to several foreclosure auctions at the courthouse in Yuba City, Ca and no one was there except me and the prices sounded attractive the only problem was that I didn't have any money back then. >>
They might have sounded attractive but they might not have been. Always do your homework by having a title search on the prorperty address and if purchasing pre-foreclosure, a name search on the individual also.
Title work lets you know if there are other liens on the property and name searchs check against judgements and against the individual that might be attached to the property.
<<So is it possible to find good deals at the courthouse especially when you are the only one there to bid?>>
YES
<< Also I've heard something about shorting or something is that when you try to cut a deal with the bank that gets the real estate after a foreclosure?>>
A short sale takes place before the auction by the lien holder that is foreclosing. The seller is the bank with approval of the owner. The owner cannot receive any equity on a short sale unless it is done under the table.
If a second is behind the foreclosing lien, they will often discount their note sometimes where you can pay 10 cents on the dollar, but get it in writing.
<<Also is the highest bidder at the auction responsible for the senior liens as well excluding tax liens? >>
The highest bidder takes over the lien being foreclosed on and is responsible for all taxes, IRS and other liens in senior position to the lien bought.
Usually if it is a first position lien foreclosing, the taxes and insurance are escrowed within the payment. The insurance will be kept in place but the lien holder will not pay taxes to cover the interest payments. So if you buy at the steps, check the tax debt also and prorate it from the time of the sale to the begining of the year to determine what will be owed.
Randall
Thank you for your reply Randall. I really appreciate the information.
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I have been to several foreclosure auctions at the courthouse in Yuba City, Ca and no one was there except me and the prices sounded attractive the only problem was that I didn't have any money back then. So is it possible to find good deals at the courthouse especially when you are the only one there to bid? Also I've heard something about shorting or something is that when you try to cut a deal with the bank that gets the real estate after a foreclosure? Also is the highest bidder at the auction responsible for the senior liens as well excluding tax liens?
jthiara,
If you were the only person attending the auction, why didn't you bid $1 for the property on the auction block?
Here is my understanding of the process, but, understand that I do not attend courthouse foreclosure auctions. Usually, the lien holder that brought the foreclosure action will attend just to bid whatever is necessary to satisfy their lien. If a first position lien holder is foreclosing, then your bid satisfies their lien. You don't take over the note; instead, you either pay cash in full or bring new financing to the auction.
A second position lien holder who brings the foreclosure action, will cure the default for any senior liens. If you win this auction, you will cash out the second position and take over the property subject to the existing senior liens. This may explain why there was no one attending the auctions when you were there. Perhaps the property was overfinanced and a second lien holder was foreclosing. If you had won the bid for $1, you would only have wiped out a junior lien. It is important to know which lien position is bringing the foreclosure action, and what liens will survive the auction.
Someone else will have to answer the question about tax liens. It is my understanding that tax liens are superior to mortgage notes and do not get wiped out by a mortgagee foreclosure action. The winning bidder will be responsible for tax liens in addition to any surviving senior liens. If the auction is a tax sale, then the sale may be subject to any existing mortgage liens, or it may wipe out mortgagee liens. These are questions to ask before the auction.
What you heard about "shorting" may have really been a reference to a "short sale". A short sale can only happen before the property goes to foreclosure. The lender agrees to accept less that the balance due on the mortgage loan as payment in full. When the lender accepts less than he is owed, it is called a "short sale". After the foreclosure, the property is owned by the bank (free and clear), and a short sale is not applicable.
Hope this helps.[ Edited by DaveT on Date 12/08/2002 ]
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If you are looking to flip properties for a quick profit, then foreclosure properties probably will not generate the profits you are hoping for.
David, would you elaborate on this comment a bit more please? Why won't foreclosed properties generate significant profits?
andrea,
The properties that usually go to foreclosure are properties with little equity. By the time you complete the purchase and pay the closing costs you have very little or no equity left for profit. Assuming you find a retail buyer quickly, what happens when that retail buyer does not want to pay FMV, or wants a seller concession? Your profit may quickly evaporate. A more likely scenario is that you will have to market the property, which means holding costs (such as mortgage payments and upkeep). If it takes you four to six months to find that retail buyer, how much of your anticipated profit is consumed by your holding costs?
I am not saying that this is always the case, just a highly probable outcome.
Jthiara,
I would like to clear up some misinformation that has been shared with you, I buy from the Foreclosure market and in the world of REI it is the best market for the best deals period.
Let me give you an example of just one of my deals from a court house sale this year. I like this one because I listed it as a FSBO and from the court house steps to the sale date it took two weeks to flip with just a little under 17k in pure profit.
Now understand I knew this would sell in under 30 days because I did my homework, I did a market survey, I researched the property at the court house (did my own preliminary title search)
Most of my foreclosures are picked up around 75% of market value or less, but this one I paid 81% of market value because it only cost me $4,300 to make it move in condition.
Over 90% of my deals are through the foreclosure market. I think I know a little about the market since I purchase them in 10 states. Also the market for foreclosures is strong in all areas of the USA.
I also find it the best market for rental properties.
Your best deals are made in the pre-foreclosure market.
Next is the Court House or sheriff sale
And then the REO - Lender owned Real Estate.
The only negative in REI Foreclosure market is not knowing enough about the market, not doing your homework and taking advantage of folks.
You must make a WIN-WIN on all deals.
I highly suggest keep asking questions, take some type of REI course or self study, Join an REI club and Invest it will change your financial life (that's just the benefit of REI) and in your case time management as it look like you have a lot on your plate.
This is just one investor's view.
[addsig]
jthiara,
I concur with all recommendations made up to this point.
There could be several reasons why you were the only one at the auction:
1. The auction for this particular property(s) has been delayed numerous times for mutual agreement, bankruptcy, etc., and the local REI lost track of it.
2. The property is not worth the bid.
3. In California, you must have 100% of the bid price in hand just to bid (payment in FULL is due at the time of the auction). That means if the opening bid is $150K, you need $150K just to bid! This reason alone is why 99% of REI's don't bid at auction!
Always take the time to research the property and the market in your area before you buy!
Hope this helps.
[addsig]
This is what I mean about knowing your market.
This is just a sample of the market
In the first eight months of 2002, Sacramento County topped the list with 2,579 notices of default filed. Almost half, or 1,283 homes were sold, but only 380 went back to the lenders in foreclosure. Were all of the 380 missed opportunities for you as an investor? Maybe not. Many of these may have been homes with little or no equity, and not worth pursuing in the pre-foreclosure stage. What of the other 70% that were sold "pre-foreclosure"?
They were great investments.
I suggest this free service for your foreclosure market
www.rsvpforeclosures.com
www.househunt.com
http://www.retran.net/whoarewe.html
[addsig]
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On 2002-12-08 03:18, DaveT wrote:
Quote:
I have been to several foreclosure auctions at the courthouse in Yuba City, Ca and no one was there except me and the prices sounded attractive the only problem was that I didn't have any money back then. So is it possible to find good deals at the courthouse especially when you are the only one there to bid? Also I've heard something about shorting or something is that when you try to cut a deal with the bank that gets the real estate after a foreclosure? Also is the highest bidder at the auction responsible for the senior liens as well excluding tax liens?
jthiara,
If you were the only person attending the auction, why didn't you bid $1 for the property on the auction block?
Here is my understanding of the process, but, understand that I do not attend courthouse foreclosure auctions.
...
Hope this helps.
<font size=-1>[ Edited by DaveT on Date 12/08/2002 ]</font>
Hey, DaveT, your answer is full of inaccuracies and misinformation.
It would be better that you not give advice if you don't really understand the process.
jthiara:
You're working full-time AND working on an MBA.
How much time do you have to invest in real estate?
To me, anything less than 10-15 hours seems insufficient.
Thank you everyone for all the replies I really appreciate it. I actually do have some extra time on my hands because I only work 3-4 days a week although it is 12 hrs. a day. I do have sufficient time with REI. Question: How many investors have closed a short sale? Any examples? How low of a offer should you initially make? Anyone have any online examples of the postcards that you mail to people in NOD and foreclosure? Thanx In Advance.