LETS WALK THROUGH A DEAL, one that has great potential to be re-assigned or 'flipped'.
Let's make it clear WE DO NOT WANT TO HOLD THESE PROPERTIES, we merely want to negotiate a low purchase price with the owner in distress and re-sell the contract which enables the final investor to ALSO buy the property at under market value.
Goals in Foreclosure Assignment
- * Give the homeowners cash to payoff loans ( back payments)
- * Give the owner some 'exit' cash depending on equity position
- * Stop the foreclosure and the potential bankruptcy and credit damage.
- * Create a good deal for final investors - due diligence regarding property condition estimating repairs etc..
- * Contract will insure final investor at substantial undermarket price
- * Create profit for yourself by establishing FINDERS FEE
Notice we think about the HOMEOWNER FIRST. Any other way makes it much tougher...picture yourself in that situation..How would YOU like to be treated?
STEP 1. Find Pre-foreclosure deals
The best way to find pre-foreclosures is to use an online service like www.foreclosure.com. You'll find any other way is WAY too time consuming. Using this website you can easily find hundreds of properties in default, many with amazing profit potential.
INITIAL SIGN UP IS FREE. A word about this. I would recommend signing up for the 7 day trial - you can CANCEL anytime and you still get to use the full service for 7 days. So there is NO risk. Once you start using this site you'll see how simple it is to find LOTS of properties in your county. If you decide to approach this in a business-like manner, the cost is peanuts really. Selling foreclosure contracts offers an amazing profit potential with very little start up cash. So sign up, look around the site and follow along.
STEP 1. Pick a property
Once you sign-up, log-in to the web site and pick a state and county, then click on 'pre-foreclosures'. For example: select state: Illinois, County: Cook. You'll see about 26,000 homes in pre-foreclosure.
STEP 2. Get The mortgage and pre-foreclosure details
We decide to pick a property in Cook County: Lansing, Illinois. The current value 'as-is' is about $220,000. We want to know what the original mortgage amount is, so we scroll down to LOAN INFORMATION - mortgage amount - and see it was originally $150,058 made on 5-6-2003. The loan terms are : 6% for 30 years. We also see the current owners are about 8 months behind (FORECLOSURE INFORMATION - filing date), this when they stopped making payments. The home is in need of about 8k worth of repairs.
STEP 3. Get Monthly Payment
Payment on this loan ( PI) would be $899.00 Estimate another $250 for tax and INS. So, we can estimate the total housing bill is $1149 a month.
STEP 4. Determine how much you need to pay off property
The loan payments began on 5/6/03 and we are now 56 payments into the mortgage ( as of 10/07) which would make the pay off $140,443. However the owners are 8 months behind in mortgage payments - $9192.00 plus penalty - bringing it up to about $10,000 . We want WIN WIN. So here's what we'll offer:
STEP 5. Make an offer
We offer to pay off the home and back payments - $150,443. PLUS, we'll give the owners exit cash of $4,000. So we proceed to present a contract to buy the home for $154,443. The owners are worn out from the stress of the foreclosure, so they galdly accept and are happy to have a solution that gives them an OPPORTUNITY TO SEPERATE FROM THE MORTGAGE, AVOID BANKRUPTCY, PLUS HAVE A BIT OF CASH WHEN THEY MOVE.
You now have a valuable instrument in hand, the right to purchase a property at way under market value. We find an investor tack on our 5% finders fee - $7,722, which gives them plenty of room to profit when they sell the property after some minor repairs , paint, landscaping, and floor repair.
Summary
This scenario is WIN WIN. Everyone comes out ahead, the distressed homeowner, you, the foreclosure investor (locking the contract, then assigning it) , and the the final investor.
This whole evaluation process should be done before meeting with the homeowner to get a feel for what the deals potential is.
You still need to go through a thorough interview with the homeowner and the lender to confirm that all the above information IS CORRECT. Even if your off on your numbers a slight bit you can see quickly if a deal is worth pursuing. TOTAL TIME INVESTED BY YOU: 12 HOURS. THAT'S OVER $600 AN HOUR - NOT BAD.
Homeowner wins
| contracted price from seller : |
$154,443 |
| Pay off to lender : |
(-$150,443) |
| Net to homeowner : |
$4,000 |
Foreclosure Investor wins
| Negotiated sale price of property: |
$154,443 |
| Finders fee : |
5% |
| Net to you : |
$7,722 |
Foreclosure Investor (Final Buyer) wins
| As is value: |
$220,000 |
| purchase price : |
($-154,443) |
| finders fee : |
($-7722) |
| fix ups : |
($-8,000) |
| Potential Profit from sale : |
$49,835 |