Real Estate Pros: New Ways to Profit from Foreclosure Properties

As real estate pros, you are very much aware of the fortunes to be made from the flood of foreclosure properties these days. This article is intended to show you new ways to profit from this phenomenon as it relates to foreclosure property investment.

For the purposes of this article, I will use the term “foreclosure properties” to include:

• Distressed properties: homes on the brink of foreclosure.
• Foreclosure properties: homes still going through the foreclosure process.
• REO properties: homes that completed the foreclosure process then didn’t sell at the foreclosure auction & therefore reverted to become property of the lender.

All real estate pros are familiar with the conventional method of foreclosure property investment that is sometimes referred to as “buy, fix & flip” or “flipping”. Just like it sounds, this method entails:

• Finding & buying foreclosure properties.
• Fixing or rehabbing the homes to “move-in” condition.
• Re-selling the foreclosure properties.

As the wave of foreclosures began to swell across the nation, entrepreneurial types began to focus more and more on foreclosure properties. Partnerships and new business relationships began to emerge, including both real estate pros and investors. As a result, specialized new companies were formed, focusing entirely on foreclosure property investment. These are what I refer to as “REO companies”.

Over the past couple of years, the most successful REO companies have evolved and become quite sophisticated. Their business models are more technologically advanced and comprehensive, but their core methodology still involves the fundamentals involved in conventional foreclosure properties “flipping”.

“Flipping” on Steroids:

Here is what the most successful REO companies do:

Step 1) REO companies contact lenders for their lists of foreclosure properties — often before they are released to the general public. These lists are known as “tapes”.

Step 2) They have a network of affiliated real estate pros “on the ground” throughout the U.S. who physically inspect each of these bank REOs included on the tapes. They create a file describing the condition of each home including all relevant details and especially repairs that need to be made, complete with photos. They also provide an evaluation for each home based on its current market value in “as is” condition plus estimates of any necessary repair costs and the resale potential of each foreclosure property. All of this information is then provided to the REO companies.

Step 3) Next, the REO companies collect all of the information from their real estate pros network and formulate the prices that they will offer to pay for each home that meets their requirements. Then, they will submit offers to the banks for each of the foreclosure properties that are believed to have solid resale and profit potential. NOTE: offers will typically be no more than 50-60% of the current market value of the home in “as is” condition.

Step 4) Upon bank approval, the foreclosure properties are purchased.

Step 5) Next, the REO companies will send in their network of construction contractors and handymen to make any necessary repairs to get each home into “move-in” condition.

Step 6) Finally, the REO companies will list each of the newly rehabbed foreclosure properties for sale via their affiliated network of real estate pros. By design, the homes are typically priced under comparable home values in their neighborhood in order to sell the homes very quickly. And, believe it not, some of these REO companies are so efficient that can buy, fix & flip these homes in an average of 4-6 months!

CONCLUSION:

At the outset of this article, I promised to show you new ways for real estate pros to profit from foreclosure properties. Actually, there are at least three:

• Earn compensation for inspecting the foreclosure properties and collecting the information required by the REO companies as noted above in Step 2.
• Earn commissions for listing and/or reselling the foreclosure properties that the REO companies decide to acquire.
• Form your own REO companies! It’s not too late. Industry predictions seem to agree that foreclosures will remain at high levels for the next 2-3 years or more.

Author’s Bio

John Hanlin is an Independent Investment Consultant specializing in high yield, low risk investments secured by real estate. He is a seasoned investor of over 25 years and manages the investor’s website: www.JohnHanlin.com. John is also the author of “The LazyMan’s Guide to Understanding Foreclosures & REO Property Investments”.