FORECLOSURE FOOD CHAIN

How to Make Money as a Rehabber: Foreclosure Food Chain (Part 4)

2009-11-07T16:35:00Z

This is the 4th post in the series about the Top 10 Ways to Profit from the Foreclosure Food Chain. This post, courtesy of Howard Small and www.foreclose.com, shows you how you can make money in foreclosures as a Rehabber.

What is a Rehabber?
A flipper is someone who finds foreclosure properties, buys them, fixes them up, then resells them to either home buyers or other investors for profit. Profits do vary significantly, but flippers should expect minimum profits of $20,000. Rehabbers typically close deals within 60-90 days, which covers the period from the initial purchase to the final settlement.

The primary difference between a rehabber and a flipper (Part 3) is that the rehabber takes the time to repair the properties, which increases their value and thereby yields bigger profits. This approach makes a lot of sense for the investor who wants to market the properties to a larger home buying market (i.e., buyers who want properties in “move in” condition). It also makes sense that the investor should earn more profits because of the additional effort, time and money required to do rehab deals.

Why Be a Rehabber?
As a rehabber, you earn much greater rewards by being able to resell the property at or near full value, assuming a reasonably strong market. Your profit would be less in a weak market, unless you adjusted your investment strategy (e.g., buying the property at a lower price to account for the market). Of course, you incur more risk than an assigner or a flipper, because of the increased time and cost to get the property ready for resale.

[Note: I’ve concluded many rehab deals and I’ve learned some valuable lessons. For example, the decision to rehab a property or to simply flip it should be based on the property location, market strength, market value and the amount of rehab work required. See the Complete Guide to Preforeclosures and Foreclosures for details on how to make big profits by adjusting your foreclosure investment strategy.]

How Does a Rehabber Do Deals?
A rehab deal begins when you prepare a contract to purchase a property and the seller accepts it. Once the seller accepts (signs) the contract you can arrange settlement, usually within 7-30 days.

If you’re buying the property as an REO from the lender, then the property will be vacant. If you’re buying the property as a preforeclosure or at an auction, it may still be occupied. You should expect the occupants to be gone (with your help if necessary) before settle on the deal.

You should begin the repairs right after the property is vacant and after settlement. You can do the work yourself if you have the skills and you’re so inclined. Or you can hire contractors to do the work for you. Whichever approach you take, you should focus on getting the work done quickly, since your costs (e.g., repairs, financing and marketing) will continue to increase for each day that passes.

You should also begin to market the property for resale to home buyers and other investors who are looking for properties in “move-in” condition. You can advertize the property yourself or you can use an agent. You then arrange the resale settlement once you find a buyer.

Financing the Deal
Similar to doing deals as a flipper, you would need to provide the financing, since you are taking possession of the property. You would have to submit a deposit (typically $10-$100 for preforeclosure properties) along with the contract to the seller. If you’re purchasing an REO from a lender, the deposit may have to be $1,000 or more.

You would also need a down payment (typically up to 5% of the purchase price) depending on the lender and the type of mortgage financing you negotiate. You would have to cover the cost of repairs, including labor and equipment as needed (e.g., appliances, windows, drywall, carpeting). Finally, you would need to cover the purchaser’s side of the settlement costs, including appraisal fee, discount points, and transfer taxes. Your settlement costs could range up to 2% of the purchase price.

Alternatively, you can do an all cash deal by either using your own money, money you’ve borrowed from your credit lines, funds you’ve obtained from a partner, or financing you’re received from a private lender.

Settlements
Note that as a rehabber, you have to participate in two settlements: the first one with the seller (to buy the property) and the second one with your buyer (to resell the fixed up property). As described earlier, you would have to cover the purchaser’s costs at the first settlement. At the second settlement, you would have to cover the seller’s costs.

These costs are offset by the even bigger profits you can make by doing foreclosure rehab deals. Since you’ll be buying properties for at least 30% - 35% below market, you will be able to cover all of the expenses (including the property repairs) and still leave big enough chunks of profit to make the deals worthwhile.

Getting Started
This example illustrates how straightforward it is to earn really good cash flow as a rehabber. You can close deals within 60-90 days, and you can make tens of thousands of dollars in profit on each deal. You can use your own cash or Other People’s Money (OPM) to finance the deals. If you’re not totally comfortable writing contracts or marketing properties, you can hire an agent to help you. If you’re not skilled or interested in doing home repairs, you can hire the appropriate contractors. Want to learn even more, get additional details at www.foreclose.com.

How to Make Money as a Flipper: Foreclosure Food Chain (Part 3)

2009-10-24T17:05:00Z

This is the 3rd post in the series about the Top 10 Ways to Profit from the Foreclosure Food Chain. This post, courtesy of Howard Small and www.foreclose.com, shows you how you can make money in foreclosures as a Flipper.

What is a Flipper?
A flipper is someone who finds foreclosure properties, buys them, then resells them to either home buyers or other investors for profit. Profits can vary significantly, but flippers should expect minimum profits between $5,000 and $20,000. Flippers typically close deals within 30-60 days, which covers the period from the initial purchase to the final settlement.

The primary difference between a flipper and an assigner (Part 2) is that the flipper takes possession of the properties at settlement. Also, unlike a rehabber (Part 4), a flipper does not generally conduct any repairs on the properties and thus resells them in “as-is” condition.

Why Be a Flipper?
Being a flipper is a very effective way to earn excellent cash flow from foreclosure properties. As a flipper, you incur some more risk than an assigner because you take possession of the properties versus just assigning them. However, your reward is much greater because of the increased profits.

How Does a Flipper Do Deals?
A flipper deal begins when you prepare a contract to purchase a property and the seller accepts it. Once the seller accepts (signs) the contract you can arrange settlement, usually within 7-30 days.

You also begin to market the property for resale to home buyers and other investors who are also looking for a good deal. You can advertize the property yourself in the local papers or real estate-related publications or you can leverage the resources of an agent. Once you find a buyer you can arrange the 2^nd and final settlement, usually in 30 days or less.

In this scenario, you should be able to conclude deals within 60 days. If however you take the time to establish a network of buyers who are interested in properties you find, you should be able to conclude deals in much less time.

Financing the Deal
You would need to provide the financing for the deal, since you are taking possession of the property. You would have to submit a deposit (typically $10-$100 for preforeclosure properties) along with the contract to the seller. If you’re purchasing an REO from a lender, the deposit may have to be $1,000 or more.

You would also need a down payment (typically up to 5% of the purchase price) depending on the lender and the type of mortgage financing you negotiate. Finally, you would need to cover the purchaser’s side of the settlement costs, including appraisal fee, discount points, and transfer taxes. Your settlement costs could range up to 2% of the purchase price.

Settlements
Note that as a flipper, you have to participate in two settlements: the first one with the seller (to buy the property) and the second one with your buyer (to resell the property). As described earlier, you would have to cover the purchaser’s costs at the first settlement. At the second settlement, you would have to cover the seller’s costs.

These costs are offset by the significant amount of profits you can make on foreclosure deals. Since you’ll be buying properties for at least 30% - 35% below market, you will be able to cover all of the expenses and still leave big enough chunks of profit to make the deals worthwhile.

Getting Started
This example illustrates how straightforward it is to earn really good cash flow as a flipper. You can close deals within 30-60 days, and you can make tens of thousands of dollars in profit on each deal. You can use your own cash or Other People’s Money (OPM) to finance the deals. If you’re not totally comfortable writing contracts or marketing properties, you can hire an agent to help you. Want to learn even more, get additional details at www.foreclose.com.

How to Make Money as an Assigner: Foreclosure Food Chain (Part 2)

2009-08-15T17:42:00Z

This is the 2nd post in the series about the Top 10 Ways to Profit from the Foreclosure Food Chain. This post, courtesy of www.foreclose.com, shows you how you can make money in foreclosures as an Assigner.

What is an assigner?
An assigner is someone who finds deals, places them under contract, assigns the contracts to buyers, and collects assignment fees. The assignment fees can range from $1,000 to $5,000, or even more depending on the particular deal.

An assigner is someone who is comfortable with contract language, and can prepare simple purchase contracts for properties. Like bird-dogs, assigners look for motivated sellers and distressed properties, including foreclosures, which could lead to nice assignment fees.

Why Be an assigner?
Being an assigner, like a bird-dog (see "How to Be a Bird-Dog" post), is a relatively easy way to get started in real estate investing. In fact, assigning a contract is one of the fastest ways to profit from a real property transaction. An assignment can generally be concluded within 30 days. An important advantage is that you can make money from assignment deals without ever owning the properties.

Doing assignment deals is a low-risk form of real estate investment, because the capital you need to invest is limited to a few hundred dollars. You may even be able to do some deals for $100 or less, depending on how you negotiate.

What is a Contract Assignment?
A contract assignment is a technique that allows you as the assignor to transfer your rights and interests in the property to an assignee. The contract assignment is documented in an agreement that enables you to sell your rights and interests for a fee. It also enables the assignee to take your place as the new owner of the property.

How Assignments Deals Work?
An assignment deal begins when you prepare a contract to purchase a property and the seller accepts it. Once the seller accepts (signs) the contract, you can then assign it to a buyer for a fee. The assignment deal ends when all three parties: the seller, you (assignor), and the buyer (assignee) attend the settlement. The seller gets paid for the property, you get your assignment fee, and the buyer gets the property.

Assignment Example
Let’s say you found a property worth $100,000 that you could buy at 65% of value or $65,000. You decide to write a contract for $65,000 and you offer the seller no more than a $1,000 deposit, with the balance of $64,000 due at settlement.

You could assign your contract to an interested buyer for a fee of $5,000, and let the buyer take your place as the potential owner. The buyer would have to come up with $6,000 to participate in the deal. This includes $1,000 to the seller to cover your initial deposit, and $5,000 to you for the assignment fee.

"And or Assigns"
The first document in a contract assignment is the Purchase Contract. In a typical contract, you would enter your name as the buyer and the owner’s name as the seller. To setup the assignment, you would simply add the phrase “and or assigns” next to your name on the contract. If for example your name was John Doe, you would write “John Doe and or assigns” as the buyer. This simple phrase gives you the ability to assign the contract to another buyer.

Assignment of Contract of Sale
The second document is the Assignment of Contract of Sale. The assignment contract is a simple, 1-page document that identifies the assignor, assignee and assignment fee.

Note: You should expect the buyer to give you a deposit when accepting your assignment. In this example, you could specify a $2,500 deposit, with the $3,500 balance due at settlement. The $2,500 would cover the $1,000 that you paid initially and provide you with $1,500 of immediate profit. Not a bad way to get started.

Settlement
Settlements for contract assignments are three-way events, involving the seller, you and the buyer. However, everyone doesn’t need to be there at the same time. The first part of the settlement can be conducted between the seller and the buyer. You can attend at a different day and time to collect the rest of your $3,500 assignment fee. How sweet is that?

All You Need to Get Started
The above example illustrates how straightforward it is to make money as an assigner. You need very little cash to do assignments, and you can collect your assignment fees fairly quickly. If you’re not comfortable preparing contracts, you can get a real estate agent to help you. You won’t have to pay for this help, because the agent’s commission is paid by the seller. I'm telling you from experience, it doesn't get much easier. Get more details at www.foreclose.com.

How to Make Money as a Bird-Dog: Foreclosure Food Chain (Part 1)

2009-07-16T14:28:00Z

How to Make Money as a Bird-dog
This is the 1st post in the series about the Top 10 Ways to Profit from the Foreclosure Food Chain. This post, courtesy of www.foreclose.com, shows you how you can make money as a bird-dog.

What is a Bird-dog?
A bird-dog is someone who finds out information about homeowners and their properties, passes that information on to investors, and collects referral fees when the investors use the information to close deals. The fees are negotiable between the bird-dog and the investor, and can range from several hundred dollars to several thousand dollars.

A bird-dog is someone who feels comfortable meeting and interacting with people, and learning about properties that could lead to good deals. He or she works with one or more investors to find properties that meet their profit-making criteria (e.g., location, price range, size of discount). A bird-dog focuses his or her time on finding out about motivated sellers and distressed properties, including foreclosures, that would yield nice profits, and in turn nice referral fees.

Why Be a Bird-dog?
The first reason is that bird-dogs don’t put up any investment capital, so there is no risk of losing money. The second is that bird-dogs don’t take possession of the properties they find, so there is no need to spend time and energy managing properties before they are resold or rented.

Being a bird-dog is a safe and simple way to get started in real estate investing. For some folks, this makes perfect sense. If you don’t have a lot of time, or if you find the whole notion of real estate investing to be bewildering, then being a bird-dog is the way to go. You can easily be a bird-dog on a part-time basis, spending as little or as much time as you have available.

All You Need to Get Started
It is actually very easy to become a bird-dog. You don’t need to spend a huge amount of time and money learning the details of the real estate investment business. In fact, you really don’t need to know much about real estate. All you need to know is how to meet investors, how to find properties, how to collect the information, and how to determine whether the properties would make good deals.

Making Money as a Bird-dog
Referral fees can be either a flat fee or some percentage of the value of the deal. There is no standard flat fee or percentage fee for bird-dogging. However, a good range for flat fees is typically $500 to $2,000 or even more, depending on the value of the deal. By the same token, a good range for a percentage fee is typically 0.5% to 1%, again depending on the value of the deal. As an example, the percentage fee for a deal valued at $200,000 would range from $1,000 to $2,000.

The key to really making money as a bird-dog is to establish a pipeline of deals. This is the same principle that sales people use to be successful. So for example, you may only want $500 extra per month. This would require a steady stream of about one deal each month or every other month, depending on the size of the fees. Alternately, you can do a deal here and there to get enough extra cash to pay some extra bills, purchase something nice, or stash it away for a future need.

Four Simple Steps
Bird-dogs make money by following four simple steps. Follow these steps now and you’ll be on your way to making money as a bird-dog.

Meeting Investors. You can meet investors very easily, by using word of mouth to let relatives, friends, coworkers and associates know of your interest in being a bird-dog. They in turn might know of investors looking for deals. You can also take advantage of the boom in Internet social media, and attract even more investors by advertising yourself using sites like Facebook, LinkedIn, Twitter, blogs and online forums.
Finding Properties. You can certainly track down properties advertised as For Sale By Owner (FSBO), and such deals can be profitable. However, you can be even more profitable by finding distressed properties owned by motivated sellers. Such sellers are motivated by financial difficulties, and need to sell their properties quickly to avoid further debt or pending foreclosure.
Getting Information. You can get a wealth of information about the properties simply by communicating with the homeowners. You will need to ask for basic information about the property (e.g., size, age, type, style), and its physical condition (e.g., damage to windows, roof, yard, walls, appliances). You will also need to ask about the debt on the property (including mortgages and liens). Get specifics on the type of information to collect from the Complete Guide to Preforeclosure.
Matching Investors and Properties. Focus on collecting information on distressed properties that match the criteria from the investors you’ve met. Maintain contact with the investors to let them know what potential deals you’re working on, and how far along you are in collecting the needed information. Once you’ve found a good match, arrange a meeting with the investor and close your end of the deal.

Top 10 Ways to Profit from Foreclosure

2009-07-03T18:45:17Z

So you want to invest in real estate foreclosures, but you’re not entirely sure how to get started. You’ve done the books, home study courses and seminars, but maybe you thought afterwards that the material was too complex or overwhelming. Maybe you also thought it was all too good to be true. Then you saw and heard the news coverage about the foreclosure meltdown, and you’re wondering whether you should just put your investment dollars under a mattress.

The Foreclosure Food Chain

What if I could expose you to a totally new way of thinking about foreclosure investing? What if I told you that the most effective ways to make money in foreclosures are linked as part of the Foreclosure Food Chain. And what if I opened your eyes to profitable opportunities that may have been sitting right under your nose. Intrigued? Then read on.

The Foreclosure Food Chain is a structured breakdown of the 10 primary links or approaches to make money in foreclosures. Each of these links is further broken down into the strategies and the underlying techniques you can apply immediately to start doing profitable deals on foreclosure properties. The links are organized with respect to the amount of time and cash needed, and the potential profitability.

10 Links of the Food Chain

You can literally look at each of the 10 links of the food chain, and determine right away which approach or approaches are best for you. You can then review the strategies and techniques to see which ones are the most attractive for your situation. It doesn’t get any better than this. You get to see all of the possible money-making ways. And you get to determine how much time and money you want to commit, and how much profit you want to make.

Foreclosure Food Chain Explained

So here are the 10 links of the food chain. These links are the most effective way for foreclosure investors to make big profits from preforeclosure and post-foreclosure properties (see the Complete Guides at my site www.foreclose.com). Consider one or more of these ways depending on your personal preferences. You can be a:

1. Birddog. If you like communicating with people and know how to find homeowners who need help.

2. Assigner. If you feel more comfortable doing deals without actually owning the properties.

3. Flipper. If you like doing quick flips to make fast cash within 30-60 days.

4. Rehabber. If you enjoy doing property repairs and would like even bigger profits.

5. Holder. If you would like to be a landlord who keeps properties as long term rentals.

6. Lease Optioner. If you like to specialize in doing lease options where you can stretch out your profits over 3-5 years.

7. Short Seller. If you would like to focus on doing short sales with homeowners and their lenders.

8. Realtor. If you are interested in helping homeowners and investors sell their properties.

9. Financial Partner. If you have cash to fund foreclosure investments and you want to split the profits with the investors.

10. Private Lender. If you have cash to provide hard-money loans to investors who would pay you interest until the property is sold, then pay off your principal.

As you can see, these are all related ways to make big profits from the Foreclosure Food Chain.

Food Chain Series

Keep in mind that this is the first of a series of posts. The subsequent posts will explain the details of each of the 10 links, so you can start making money right away. Please be sure to check back again for the next post. Feel free to comment on this and subsequent posts.