In your real estate investing courses, I am sure that you have learned about the niche in pre-foreclosures. Pre-foreclosures are when the bank has filed with the county a notice of default (NOD), but the house has not gone to sale yet. The homeowners are usually at least 60 days late on their mortgage, and many of them have given up and are just waiting for the sale to take place. These are some of the most motivated sellers out there. Imagine having to choose between losing everything and getting a black mark on your credit, or selling your house for much less than it is worth and getting to walk away free and clear. Some investors, myself included, will even negotiate with the owner for them to receive much of their equity back --if the numbers allow it. Let's say we have a house that has an ARV of $500,000. The homeowner only owes $150,000 but he lost his job, is in distress, and doesn't know how to handle selling his house before a foreclosure. You offer to purchase the house at $300,000 and it only costs you $80,000 in rehabbing costs. Now, this is an ideal situation, but I think you can see where this is going. These cases do happen where the investor AND the homeowner walk away VERY happy.
Other advantages to the pre-foreclosure market:
1. Focusing on one type of distressed sellers helps you to create better marketing plans and goals. When you can directly relate to people going through pre-foreclosure, your chances of getting deals are better.
2. You won't be wasting your time talking to sellers who aren't motivated. I can't imagine that there would be many people going through foreclosure that aren't motivated.
3. There can be a lot of equity in these homes. If there is not, discounted loans can be negotiated for your benefit since these notes are in default (AKA Short Sale).
4. You are truly helping these people who are going through many hardships at this time. You can offer your support and guidance as well. Many of the homeowners probably just want someone to listen to them and their story. People like to feel important, but these homeowners may feel at the bottom of the dumps right now. Just giving them a little time to show them that you care can be invaluable. Take a minute and put yourself in their shoes. How would you feel if you were losing your house?
Now remember, statistics show that the homeowners do not respond to letters that they receive only once. You must be mailing them something at least every 21 days for them to remember who you are and what you are offering. They may throw away the first 3 or 4 letters you send, so be consistent. When they do decide to try and sell their house, you want to be the last person who has contacted them and the first person that comes to their mind.
Next you need to know how to get access to these homeowners. The article below will explain how to get these lists.