Pre foreclosure homes, in particular, offer a unique chance to snap up valuable real estate investments at below-market rates.
Savvy real estate investors have long known that off market properties can be extremely profitable. If done properly, opting for pre foreclosure listings is a real estate investment strategy that is guaranteed to yield immediate returns.
So what exactly is a home that is in pre foreclosure? How do you buy a house that is in pre foreclosure? And what are some of the best ways to find pre foreclosure homes? This article will clarify all these points and show you how to find pre foreclosure homes in a matter of minutes.
To equip you with the right knowledge and tools for your pre foreclosure home hunting, we’ve put together the following blog post to explain the following:
- What Pre Foreclosure Homes are
- The Benefits of Investing in Pre Foreclosure Homes
- Where and How to Find Homes in Pre Foreclosure
- How to buy pre foreclosure homes
What Are Pre Foreclosure Homes?
Before showing you how to find homes in pre foreclosure, let’s define this concept first. As the name clearly implies, pre foreclosure homes are properties that are still in the first stage of the repossession process. A home goes into pre foreclosure the moment the lender files a Notice of Default. When it happens, the property owner is faced with two options; repay the debt and reverse the status, or offload the property before it is repossessed.
From a real estate investor’s perspective, the second option presents a good opportunity to secure an undervalued real estate investment. It is due to the simple fact that the property owner will be under a significant time constraint and is, therefore, more likely to accept a relatively low offer. Here are some other advantages of buying pre foreclosure properties:
- You typically won’t have to deal with any competition when making an offer
- The buying process is very quick
- Unlike buying at an auction, you are able to visit the investment property and inspect its condition
Now that you are familiar with pre foreclosed homes, let’s delve into the investment property search and outline how to find pre foreclosure homes in the US housing market.
How to Find Pre Foreclosure Homes for Sale
Finding pre foreclosure homes is achievable through a wide range of methods. In fact, there is no dearth of options when it comes to identifying these investment properties. Moreover, there are several real estate investment tools that can aid in the process.
7 Places to Get Pre Foreclosure Homes
When it comes to finding pre foreclosures, there are many options you could explore. The strategy you use will depend on how much energy and time you are ready to invest in the process of locating pre foreclosure leads.
1. Online Real Estate Website Directories
An online directory is one of the best places to find pre foreclosure leads. With the click of a mouse, you will access not only hundreds of pre foreclosure leads but also photos and descriptions of each property. Some of the top online directories in the market include real estate investor websites such as Zillow, Trulia, Realtor.com, Homes.com, Movoto, and LoopNet.
Another great online directory for off market properties (including pre foreclosures) is the Mashvisor Property Marketplace. It is, by far, the best real estate website on the market as it offers a wide selection of properties that ranges from pre foreclosure homes to tenant-occupied rentals.
The tool also allows you to use filters such as type of property, rental strategy, cash on cash return, cap rate, budget, and location to find a home that fits your criteria. The Mashvisor Property Marketplace also provides you access to an investment property calculator which you can use to analyze pre foreclosure properties based on occupancy rate, cap rate, cash on cash return, and cash flow. Best of all, you don’t have to worry about finding owner contact information.
2. Real Estate Agents
Accredited real estate agents have access to the multiple listing service (MLS), a database of homes for sale. Your real estate agent will search the MLS to find pre foreclosure listings. In addition, the agent can schedule appointments with property owners and negotiate deals on your behalf. They will conduct research and provide comprehensive property photos and information such as the annual property taxes, the square footage, and how much the home was last sold for.
3. Public Records
You can access pre foreclosure listings at no cost by visiting your county recorder’s office. In the public records section, look for Notice of Sale, Lis Pendens, and Notice of Default. These are notices sent to the property owner and publicly recorded in the foreclosure proceedings. Other details available in public records are the property owner’s name, the property’s address, the foreclosing bank, and how much is owed on the home. However, you will not find a comprehensive property description or photos of the home. The main downside of public records is that it takes a lot of time to go through all the data available.
To learn more about how Mashvisor will help you make faster and smarter real estate investment decisions, click here.
4. Local Newspapers
Really? At this day and age? Well, old-fashion as it may seem, the legal notice section of newspapers can show you where to look for pre foreclosure homes as it provides a list of properties that will be included in an auction. You will find the list on the real estate classified ads or under the heading “Investment Properties.”
Visit these sections at least once per week so you can monitor those properties that have been posted for weeks – owners of those properties are more likely in a hurry to sell the property even at a much lower price. The only downside to this approach is the newspaper’s lack of details. It also does not show any photo or description of the property, so you need to research. You still need to gather additional information about the income property and the homeowner.
If you are truly opposed to the newspaper in printed form, you can always search the online edition with the same information.
What’s nice about referring to newspapers is the ease of access, print or online. The other benefit is the updated information you will get from this source. Also, because not many people would think of using the newspaper as a reference, that would mean less competition with the property.
This method is ideal for experienced house flippers who know what to look for in a property and ask the right questions to the homeowner.
5. Real Estate Attorneys
People whose properties are in pre foreclosure are usually represented by a real estate attorney. Therefore, building a rapport with such attorneys can be a great way to get first-hand information about the best pre foreclosure leads that other investors are not aware of. You can find real estate attorneys by referral or by networking in real estate events. However, some of these attorneys will charge you referral fees for each pre foreclosure lead they give you.
6. Real Estate Network
Agents are not the only real estate professionals that can help you land a home before it hits a pre foreclosure auction. To maximize your chances of securing an investment, get the word out to everyone within your real estate circle. iT includes everyone from mortgage providers that you have worked with to real estate attorneys that have helped you close previous deals.
Another group of professionals that deal with pre foreclosure listings is real estate wholesalers. As a matter of fact, you might know a wholesaler who has extensive knowledge of a particular area as well as the types of listings that are currently on that market.
7. Connect with Real Estate Wholesalers
A real estate wholesaler finds distressed houses for sale, contracts them with the owner or seller, then finds a buyer for them at a higher price than that of the seller. Unlike the house flipper, a real estate wholesaler does not do any repair or renovations to the distressed property.
Since wholesalers are experienced real estate professionals, it is not just the pre foreclosure listing they can provide you with. They may be helpful to you if you decide to fix and flip the property. You may also learn something from them about real estate investing. However, you may have to pay a wholesaler a referral fee for giving you the leads, even if you still have to research the property.
Now, where to find these wholesalers? Join an association for real estate investors or ask a real estate agent to refer you to one.
If you are a first-time investor, do not rely on this approach. Aside from the research that you need to do, wholesalers prefer to refer experienced real estate investors.
Pros & Cons of Pre Foreclosure Home Investing
Before we look at ways of finding a house in pre foreclosure, it is important to understand the pros and cons of investing in pre foreclosure homes.
Pros of Pre Foreclosure Home Investing
- Motivated sellers – Pre foreclosure owners are usually in a hurry to sell their properties in order to avoid foreclosure. This means that real estate investors have an advantage when it comes to negotiating the price.
- Lower prices – Pre foreclosures usually sell for much less than their actual market value. If you are lucky, you can buy a property for even 50% below market cost.
- Property disclosure – If you purchase a home at the pre foreclosure stage, you will get a property disclosure. This is a document outlining any known defects on the property. Knowing what is wrong with the investment property will help you make a more informed decision.
- Less competition – When you purchase a pre foreclosure, you will typically face less competition than when purchasing a foreclosure or real estate owned property.
Cons of Pre Foreclosure Home Investing
- Hidden liabilities and liens – It is quite common for pre foreclosed properties to carry unpaid taxes and liens. If the property owner doesn’t reveal this information, you might have to pay these costs as the new owner.
- Learning curve – Before purchasing a pre foreclosure home, you must understand the legalities involved in the process. This can be a very steep learning curve.
- Poor condition – Many pre foreclosures come in very bad shape. This means that you may have to dig deep into your pockets to repair or renovate such investment properties.
Pre foreclosure homes are another way of investing in real estate, and it is a strategy that savvy investors apply. The processes involved in this real estate investment strategy are more complex than most other strategies because of the challenge of finding a pre foreclosed property, the legalities involved, and the sensitivity required in dealing with the property owner.
Finding pre foreclosure homes has never been easier. Thanks to the growing popularity of the internet, as well as various real estate investment software solutions, you are always just a few clicks away from securing the perfect real estate investment. For more real estate investing tips, head over to our Real Estate Investment Blog.
FAQs: Pre Foreclosure Listings
1. What are the First Stages of Foreclosure?
Usually, the foreclosure procedure happens in six phases:
- Payment default
- Notice of default (NOD)
- Notice of trustee’s sale
- Trustee’s sale
- Real estate owned (REO)
Pre foreclosure is the stage where the property owner has already received a notice of default, but the property has not yet been foreclosed upon. This means that the owner still has the chance to catch up with their loan payments or sell the property.
2. How to Buy Pre Foreclosure Homes?
You have selected the property you would like to invest in. The next logical step is to purchase the property. Here are some tips when buying a pre-foreclosed property:
- Check if the homeowner’s problem has been resolved. It’s possible that from the time the property was listed, the homeowner has settled their debts with the lender, reversing the pre foreclosure status. Ask for assistance from a real estate professional specializing in foreclosures.
- Validate the numbers. Although Mashvisor’s data are reliable, it won’t hurt to validate the numbers. Check the total loan values, property value or selling price, estimated purchase and repair costs. You can better negotiate a good price for the property when you have these values.
- Express your interest in purchasing. Exercise diplomacy when talking to the homeowner. Persuade them to allow you to tour the property to determine the amount of repair needed. Negotiate if you must.
- Make the purchase official. Find a real estate lawyer to help make the purchase agreement binding and fair to both parties. Let a real estate agent or a lender begin the escrow process.