To make a good profit in real
estate, you must buy right. Check out all property types
available to find the best transaction for your specific
situation. Consider fixers, distressed sales, repossessions,
multiple listings, for sale by owners, and vacant properties
just wasting away.
Recognize the difference between a
fixer and a distressed property. Distressed properties may be
fixers or just unwanted houses. Divorce, job loss or transfer,
death, financial difficulty, and other problems often force a
sale for less than market value. Just because an owner’s
problem causes a distressed sale does not mean the house
Although the repossession market
seemed dried up last summer, houses are beginning to appear on
foreclosed lists again. Lender Rob Kramarz with Nationwide
Mortgage (www.seetloan.com) says that this may be the
beginning of another real estate investor boom.
Look for great bargain properties
for sale by HUD, VA, Freddie Mac, Fannie Mae, and Bank-REOs
(acronym for real estate owned). Real estate agents try to
discourage you from repos and switch you to multiple listed
homes. Do not listen to negative remarks about how hard it is
to find a good deal property. Find another agent. Even in the
hot market at the time of this writing, when the average house
sells in less than three weeks, we found two properties for at
least forty thousand dollars under market value.
Paying a listing service to mail you
lists of repossessed properties is a waste of money. Actually,
by the time you get these lists, the houses are already sold.
Many web sites listing foreclosures thrive on the web for no
charge to you.
Take a flashlight with you to view a
repossessed property. With no electrical service and boards
covering windows, viewing dark rooms is tough. A good real
estate agent will have her own flashlight, but you want to see
what you want and not what she wants you to see.
In our area, new HUD listings post
online late Thursday night or Friday morning. New “Daily’s,”
homes previously sold which fell out of escrow, post Saturday
morning. Properties not sold during the bid time stay listed
as daily’s. Bids, due by the following Tuesday at midnight,
must be submitted by a real estate agent who has completed HUD
registration. Don't waste your time using a Realtor who is not
familiar with selling HUD homes. Any mistake causes the bid to
be rejected. Don't use an agent who says you must bid way over
minimum bid. Find an agent specializing in HUD homes who wants
to work with you on your terms. Many bargain HUD homes do sell
for far more than the minimum bid. Hold out for the one
property which doesn't get way overbid. (I bid about $40,000
under minimum on our second home owner-occupant mountain
We submit many bids and win enough
to make it pay us well. HUD only allows one repo purchase as
an owner-occupant every two years from the date of
Rely on your gut instinct and don't
let your real estate agent unduly influence you. It is not a
difficult process for your agent to make a computer bid. You
need an agent willing to make a few bids to get a successful
bid. This is like winning a lottery, with the odds in your
Bids must have a lender’s loan
commitment statement. Lenders unfamiliar with HUD requirements
also waste your time. Any mistake causes you to lose the
purchase. Not all lenders understand HUD’s bid, finance, and
When placing a HUD bid, raise your
offering bid to cover some of your closing costs. This means
you get HUD to pay your closing costs and save out-of-pocket
expenses. Also, the higher sales price impacts the market
comparable sales in your favor for sale later. Your purchase
price influences the values of the market area. Keeping prices
higher for active sales during your renovation time protects
your investment potential.
Don't get attached to one particular
property. We placed a bid on a home I loved in Apple Valley
and lost it by a few hundred dollars. The house came back on
the list later, not at all uncommon for HUD repos. But, by
this time, we had already purchased a better distressed
Cleaner than HUD repos, homes owned
by the Veterans Administration are also offered on a bidding
system through real estate agents. The VA partially fixes up
their repossessed homes. The VA sometimes offers vendee
(seller) financing with few processing costs, low interest,
and no prepayment penalty. You do not have to be a Veteran to
buy these easy to qualify for homes.
As of this writing, the VA is
changing the way these homes are offered for sale. This is
another reason you need a real estate agent who stays on top
of recently revised marketing procedures relating to
Less known government agencies such
as Fannie Mae, Freddie Mac, FDIC, SBA, the IRS, and GSA list
repossessed properties on their individual web sites. These
properties, rarer than HUD and VA, usually get cleaned and
repaired before listing with real estate agencies with sale
prices closer to market value.
Banks often offer their real estate
owned—REO homes at bargain prices. Depending on the bank’s
resale policy, conditions of the property, and available
financing, REO opportunities vary widely. Several banks lend
on their repos while other banks just want out. Great
financing becomes possible through the banks who offer
in-house terms. Ask for no points, minimal loan costs, and no
prepayment penalties. Check with your local lending
institutions and find out how they market their repossessions.
Many of these bankers will give you their web page listing
available property. Befriend real estate agents who specialize
in listing bank-owned repossessions so they will notify you of
a new listing immediately.
It is hard to find a bargain in
multiple listings, but not impossible. Check out listings
which have been on the market for awhile. Look for vacant
houses, as these cost the seller money every month. Make an
offer for much less than asking price with a quick escrow.
Many anxious sellers jump on an offer if they think they will
be out of their problem in only ten days. This is another
reason you need a lender and an escrow officer who perform
I follow the multiple listings in
our area on the Multiple Listing Service. One of my agents
emails me new listings daily. You need an agent who calls you
the minute a new distressed property listing becomes
available. Under-priced listings mostly get snapped up by the
real estate agents and their investors before they hit the
Just like making many bids, make
many offers. You never know when a seller’s problems reach a
critical point causing abrupt action.
For Sale by
Houses for sale by owner may not
always be a great buy, but there is always at least one
bargain out there. Many investors prefer buying directly from
the owner. If you have ever tried to sell your home by
yourself, you probably met some of these investors. Cruel,
hard, and in some cases, fraudulent investors dream up all
kinds of schemes to steal houses from distraught homeowners.
Understand that the home seller most likely dealt with these
callous investors before you and therefore may view you with
suspicion. Earn their trust by working with them honestly and
Let honesty and kindness guide your
actions with sellers. Finding out the seller’s specific
problem is the key to helping them and yourself. Uncover the
seller’s particular need and find a solution. Because it is
embarrassing for some sellers to let you in on their troubles,
extra sympathy and relaxed timing helps you unearth their
underlying motivation. Listen carefully, stop talking, and pay
attention to details which lead to understanding the real
reason they need to sell.
The seller may need a quick escrow,
need to rent back the home for a while, or want immediate
cash. You could give the seller a loan of cash with a note
secured by the property. Ask an attorney about your state laws
regarding this type of purchase advance. We offered a seller a
$2,000 deposit outside of escrow, which went toward the down
payment, to entice a money-hungry seller to commit to our low
Many sellers do not need all of
their cash out. Owner financing is a great deal for you.
Usually, you get a lower interest rate and you don't have to
pay lender’s points or prepayment penalties. Also, these loans
typically won't show on your credit report so you won't have
these payments counted against you. If you have a good credit
report, take a copy with you to show to the seller. This
prevents more inquiries on your credit history and keeps your
credit score from dropping.
Ready to Buy
Be prepared to make an offer
immediately when you find a bargain. Make sure you are
pre-approved with a great lender who can close quickly.
Distressed sellers and fixer houses
offer you a great way to get into the real estate investing
(c) Copyright 2004, Jeanette J.
Fisher. All rights reserved.
Professor Jeanette Fisher,
author of Doghouse to Dollhouse for
Dollars, Joy to the Home, and other
books teaches Real Estate Investing
and Design Psychology.