Pre foreclosure investing is a strategy that is becoming increasingly popular with many people. Buying a pre foreclosure can be tricky, but it is well worth the risk if you do your research well.
A pre foreclosure is basically a traditional or Airbnb investment property that is still in the first stages of the foreclosure process. 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 income 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.
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 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 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.
How to Get Pre Foreclosure Leads
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.
Here are five places where to find pre foreclosure leads:
1. Online 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. Take note that you might have to pay a small fee to use some of these services.
Another great online directory for off market properties (including pre foreclosures) is the Mashvisor Property Marketplace. This is a tool that 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. You can easily find pre foreclosure leads with phone numbers and email addresses using the Marketplace and Mashboard.
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
When the foreclosure process commences, the property owner will receive several notices, including Lis Pendens which will appear in the legal section of the local newspaper. The same information is likely to appear in online editions of newspapers. A quick look at the legal section of your local newspaper will reveal homes that have litigation pending. Once you get the addresses of pre foreclosure leads, you could simply drive to the neighborhood to have a look at them and even meet the homeowner. Alternatively, send a letter or email to the potential seller and indicate your interest.
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.
Learn More: How to Find Pre Foreclosure Homes in 2020
Whether you are in Washington, Los Angeles, Las Vegas, San Diego or Seattle, finding pre foreclosure leads is not very difficult. With all the strategies listed above, you should be able to find the property you are looking for pretty fast. Once you’ve found the ideal pre foreclosure lead, be sure to act fast to avoid competition.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.