There are places, like Las Vegas, where bitter homeowners resort to trashing and damages to the property as a means to lash out to unwanted foreclosures. We can hardly blame them for being so disagreeable and frustrated. Property financial problems like foreclosure is not what every homeowner wants.

As a result, many foreclosed properties are found to be left with walls with punched holes, dumped paint, and broken appliances. Some would even leave their pets inside and let it do the work.

One can hardly blame them. For homeowners who have built on their dreams with their property and home, a foreclosure is upsetting. A lot of people would decide to take all that they can get from their properties, even if by law it belongs to the bank. There are also those that go overboard, wreaking ultimate havoc by smashing light fixtures and leaving paint and more mess.

Real estate agencies have settled this problem by working on a win-win situation for both the agents and the frustrated homeowners. The current tactic to settle it in a peaceful way is to offer the homeowners money to leave and to leave the property in good shape. They will not be given the money, however, if the house was wrecked. This method is now informally known as the “cash for keys” approach.

The money offered (amounting to hundreds or even thousands of dollars) may be seen as a bribe. But it cannot be denied that for now this is the most agreeable solution for both parties. For the real estate agents, this helps in getting hold of the property without many delays and with minimal repairs. For the homeowners, they get financial help with the offered cash as they leave.

Banks and mortgage companies rarely go after the former homeowners of destroyed properties. They would actually go for the “cash for keys” approach because it will cost them less. The negotiations will also go faster and more peaceful for both parties.

It is already a fact that there is a tremendous increase in foreclosures in the real estate market. This is primarily due to the generally slowing housing sales and the increase in the rate of monthly mortgage payments.

For real estate investors, this is an opportunity to reap lots of profit, and there is not only one but eight — eight! — ways to do it!

1. See if the owner of the house would like to sell it.

Without having to go through the trouble of getting the lenders involved, you can invest in the property directly with the owner. If the owner wants to sell the house, then what’s stopping you from investing in it?

2. Try to get a loan modification from the lenders.

A lot of houses are being repossessed nowadays by the banks and lenders, and around eight out of ten go back to them after auctions because the homes have low equity. Due to the increasing repossessions, the lenders would be more than willing to have the houses sold as soon as possible.

So if the owner of the house himself wants to sell it, then the lenders will be hesitant to repossess the home. They will offer a loan modification as a way of supporting the sale. A loan modification is done when the lender sees that the homeowner has sufficient income and can pay next month’s rent. The lender and the owner will then work the finances out to make it possible for the owner to sell the house. 

3. Short sale!

There are times when the owner would want to sell the house but that there is little or no equity to the house. When this is the case, the best thing you can do is do a short sale. The lender will agree to make a discount on the balance of the loan so that the owner can proceed to sell the house before the auction.

4. Call the lender and see if they will sell the loan to the house to you.

When the owner doesn’t want to sell the house, and if he or she refuses any help from you or any load modification, the best thing to do would be to negotiate with the lender directly.

Ask the lender if you can buy the loan to the house from them. You will be a note buyer in this scenario. In most cases, the lender will agree to your offer so that they won’t have to repossess the house.

5. Go to the auction and bid on it.

This goes without saying. You might have missed some good catches. When you see a good house to invest in, bid on it. Take care not to bid on houses that have no equity.

There will be a disadvantage in bidding on a house during the auction, however. You will not be able to inspect the house as you would like to. You will only be able to see the outside. You won’t be able to assess the house in this case. 

6. Make an offer to the lender after the auction.

While it’s not okay to bid on houses that have no equity during the auction, it doesn’t mean that you will entirely ignore them. Watch as the house goes back to the lenders (because there were no bids), and when you find it good enough for you, see the lender after the auction and make an offer to the lender.

7. Buy the house from an investor.

A lot of real estate investors wholesale property. There will not be much of a problem where two investors working on a deal are concerned.

8. Follow up on bankruptcy cases.

While bankruptcy stops foreclosures, houses that have been declared with bankruptcy can be brought back to foreclosure. Be sure to follow up on bankruptcy cases because the owners might just come to you for help when the foreclosure starts again.

You will see that these processes are closely ties to each other. This is proof that the most important thing in investing in real estate and making a profit out of investing is to look into the details and play it smart. There is an opportunity in every deal.

With the many tips and advice being given by successful real estate investors, it can become difficult for beginners and striving real estate investors to take in everything. All those mounting information will become a jumble in the head in the process.

That’s why it is important to have a system in investing in real estate, a system that you have researched on and one which you have tested and corrected.

T – time tested

R – results proven

U- unique

E – effective

S – save

Y – your

S – self

T – time

E – energy

M – money

This will become the code of the TRUE SYSTEM of real estate investing.

Within this system, the process of real estate investing can be broken down into ten steps. This process will be your guide in how to buy right and win, gaining wealth and profit!

THE TEN STEPS

1. Put together a “Power Team”

Your power team will be made up of the entire team that you’ll be working with throughout the process of investing in a property. The power team consists of realtor or brokers, lenders or bankers, home inspectors, contractors, appraisers, attorneys, accountants, and other people who are necessary to start and finish the project.

2. Locating Properties

In locating properties, you can either look for it in your area by driving around and looking out for notices of sales or foreclosure, or you can look in the Internet and do a wide search on properties that you can invest in. The following are some sites that can help you search for property:

www.ocwen.com

www.homesales.gov

www.foreclosures.com

www.resales.usda.gov

www.buybankhomes.com

www.firstpreston.com

www.hud.gov/homes/

www.homesteps.com

Other sources to know where to find properties are just around you. You only need to ask. Ask your family, your friends, associates, or people in the business. You can look it up on record services or auctions, too.

3. Research Property

Once you’ve found a potential property, you normally don’t go in and take the plunge. First, you need to do a thorough research on the property — its area, the market, the deed, insurances, mortgage, and a lot more.

Here is a list of websites that can help with your property research:

www.hpapts.com (Hendricks and Partners publication and website)

www.city-data.com (for specific city information)

www.census.gov

www.bea.gov (Bureau of Economic Analysis)

www.rentslicer.com (market rents)

www.huduser.org

4. Inspect Property

The home inspectors in your team can handle this. But, of course, you should still know what the property has and needs.

Here are websites that can help when you’re looking for home inspectors:

www.ashi.org (American Society of Home Inspectors)

www.hometeaminspection.com

5. Financial Analysis

A financial analysis is needed, and it is crucial that you have one. You need to come up with a solid assurance that this project won’t go down the drain. Project budgets and calculations as to how much the property will cost you and how much it will bring back to you.

One of the bases in the financial analysis of whether or not a property is worth investing in is the CAP rate. It is the rate of return on net operating income considered acceptable for an investor and it is used to determine the capitalized value of a property. The higher your CAP rate, the better results you’ll get. A cap rate of 10% is considered a very good deal. Just remember that it has to be your personal CAP rate and not the market CAP rate.

6. Negotiate and Structure Your Contract

The results of the deal will mostly be determined by how well you negotiate and structure your contract. So it is important that you pay close attention and be very critical of how you handle this process.

Within the negotiations, always ask for seller financing. Ask if the seller will be willing to pay all or a portion of the closing costs. This may not always be the case, but it would never hurt to ask.

Compare the market value of the property, and try to reduce the offered price of the property for the needed maintenance. Make sure to estimate construction costs, holding costs (mortgage, insurance, utilities, etc.), and estimate the time needed to cover them all. Estimate the other finances that have to be considered, such as the required profit for a great deal, the income to be generated to determine the profitability of the deal, and the closing costs.

Always confirm 1031 funds if there are any, prior to making your offer and prior to closing escrow. Make sure there are no prepay penalties, and negotiate a lower sales price if you find that the property has defects and requires maintenance. Confirm that there are no hidden leases existing and base your estimated income based on actual copies of the leases. It is clearly evident that you have to obtain all the documents and contracts on the property to make your decisions and for the negotiations to go smoothly.

Make a clear inventory of the property. Makes sure specific equipment are privately owned by the seller, and require an inventory list of the things that go with the property. Research and ask for the building plans, engineering, bids, and estimates that have been completed or are in the process of completion.

These are mostly some critical points that you shouldn’t forget when going through a negotiation. Remember that negotiating is just equal to producing your profit!

7. Buy it Right!

When buying and investing in a property, there are precautions and check-ups to be made with the property. First of all, you have to procure landlord insurance for your protection before doing anything with the property. Obtain bids on all the necessary components of rehab and check on the lights, plumbing, and other utilities. Make a proper budget plan for the rehab, and immediately put your rehab team to work. Time also costs money, so it is important that you optimize every second of it.

Develop contract with the default language, with specific penalty clauses, and clearly define your terms and conditions regarding payment and costs. Don’t forget to obtain copies of insurance and licenses, too!

In your rehab and improvement project, it is normally wise to start with the exterior of the property. Remember that every second counts, so you might want to start advertising the place after you’ve renovated the outside. You can work on the inside even if the advertisements are still going since it’ll be the outside that will first be shown to the public.

In offering your price for the property, remember not to offer too much too soon. You should proceed with this negotiation as conservatively as possible. Remember that you have to buy it right!

Here is a list of websites where you can get contractors for your team:

www.angieslist.com

www.everycontractor.com

www.renovationexperts.com

www.nahb.com

8. Get property appraisal

The appraisal of the property can be either done by you or a recommended contact of your lender. Always ask first if your lender has a list of appraisers. This will also help in fostering your relationship with your lenders and in building a healthy network in real estate investing.

If you’re going to choose the appraiser yourself, ask and confirm if they have any errors and omissions insurance. Most lenders do not actually accept appraisal without errors and omissions insurance so be particular about this one.

Here are some websites that you can look up for property appraisal:

www.zillow.com

www.firstamres.com

www.housevalues.com

www.cyberhomes.com

www.realestateabc.com

www.naifa.com

www.appraisalinstitute.org

www.ana-appraisers.org

www.appraiserdatabase.com

9. Refinance for Tax Free Proceeds

The financials continue to be first priority, from the start to the finish of the deal. Refinance for tax free proceeds and go over your income and profit. Remember that proceeds from loans are not taxed.

10. Retain property or do a 1031 Exchange

You have either the option to retain the property and get residual income and monthly cash flow or you can sell the property and do a 1031 exchange to protect your equity.

Throughout the process of investing in a real estate property, remember to be critical. At first glance, consider looking at purchase price, the amount of money needed to fix it up, the rent, the existing market pressures, and the uniqueness of the property and the benefits it can give. Do not forget to base your purchase price based on today’s value.

Any real estate investor would know that, in the niches of real estate business, the hidden foreclosure market is one that contains the biggest deals. But while it may have the biggest deals, the foreclosure market is very competitive, which is why in general investors stay away from them.

But there is still a way to get deals in the foreclosure market without having to fight it out. All you have to do is look for that chance where you can convert a lead into a deal, that opportunity which actually has always been there.

The first thing you have to remember is this: Every lead is sacred.

Regarding foreclosures, you will find that people will do either of three things:

1. Pay back and escape foreclosure
2. Find a buyer
3. Claim bankruptcy

Most would choose the third option and claim bankruptcy. And what most of the real estate investors would do is to stop following up on these properties. Foreclosure has stopped, after all, and nothing can be gained from it anymore.

One thing that you have to realize, however, is that most people who claim bankruptcy don’t always stay bankrupt. A lot of reasons can be found for a person to be removed from bankruptcy, the primary of which is that they cannot comply with the terms of the bankruptcy. And when they’re pulled out of bankruptcy, foreclosure would start all over again.

This would be the chance for real estate investors to get in the hidden foreclosure market and get on top of the competition — the foreclosure gap. The foreclosure gap can be referred to as the time when the foreclosure has stopped because bankruptcy was claimed to the time when foreclosure starts again because of the removal from bankruptcy.

Every lead is sacred.

If the general population of real estate investors has dropped leads that led to bankruptcy, you can be among the few of those who’ll try a different tactic.

Follow up on the lead even if the person has filed for bankruptcy. You can send cards or notes that you will still support them in case they’ll need a hand in the future. In the end, when the bankruptcy claim has been lifted and the foreclosure starts again, you will be among the very first to be called in to get the deal done.

The key here is to continuously build a relationship with your leads. While giving yourself a lot of openings and a lot of chances, you’re also giving them a way to call you when they’ll be undergoing for a foreclosure again.

The situation has also become a little ironic in this case. From a market wherein there is a lot of heavy competition, you have actually turned the tables around and found yourself in a niche that has no competition at all! This is because almost nobody follows up on these “bankruptcy” cases.

Every lead is sacred. The hidden foreclosure market is proof of that.