Real Estate Investing - Finding the Deals

"Where can I find great deals?"

This has to be the most asked question in buying real estate. There is no "one" answer to this question. If there was, everybody would be buying and eventually all of the great deals would be gone.

Truly great deals can be found almost anywhere. You just need to be looking. Several places to find great buys are:

• Real estate agents
• VA or HUD sales
• Foreclosure auctions
• Banks

Here is a brief explanation of each:

Real estate agents- Real estate agents are the true professionals of the business. They have chosen to make their living strictly from selling real estate. To survive, they must sell properties. That definitely works to your advantage. They need to find you that great property or they don't get paid.

When you first begin, it is important to find a good real estate agent (or a few good real estate agents, if possible). This individual should be aggressive and must have a strong knowledge of the area.

There are many ways to find a good real estate agent. Examples include asking around and placing advertisements in the newspaper. To find top-notch agents in your area, visit our real estate agent directory. Once you find a qualified real estate agent, let them know the types of properties that you desire (massive rehab, minor rehab or both). This will help them in their search.

Real estate agents have a vast amount of information at their fingertips, today. They use a system called the Multiple Listing Service (MLS). Every time that a property is listed through a real estate agent, it is placed in the MLS. This gives the real estate agent a lot of information about the property without even looking at it. Here are a few examples:

• Asking price
• How long it has been for sale
• Property details (Square footage, year built, # of bedrooms, # of bathrooms, equipment such as A/C and the heating system, type of siding, etc.)
• Tax assessment
• Special note from the listing agent of any pertinent information (aggressive seller, closing cost assistance, etc.)

The MLS will also contain a market analysis of the area. It will show comparable sales that have taken place in the past few years and their selling price. This will give you a good idea of how much the property will bring. It will also show how many properties are currently listed in that area.

Through the MLS, a real estate agent can find attractive properties that are owned by banks, estates and private individuals. You, along with the real estate agent, need to search through these properties to find the most favorable ones. When you first start, this process will take a lot of time, but with every property, you will gain more experience and the process will get faster and faster.

VA/HUD Sales- In Section 1, government-backed loans were explained. In the event of foreclosure, these properties are purchased by their respective department. VA loans go to the Department of Veteran's Affairs. FHA loans go to the Department of Housing and Urban Development.

Once the properties have been processed, they will be placed on a sales list. This list is similar to the MLS but not as detailed. It will show square footage, price, type of property (single family home, townhouse, condo, etc.) and comments on property (needs work).

Occasionally, investors may have to wait for a period of time before they can bid on a particular property. This is to give the general public the first chance at a newly listed property. VA and HUD may also limit the time to accept bids. If that is the case, you will see a date printed. This will mean that all bids will be taken until this date and the highest bid will be accepted if it is high enough. If no date is printed, it is usually "first come". The first acceptable bid is taken.

VA and HUD lists are updated often. New properties are added, sold ones are deleted and current listings are updated (price, first come, bid date, etc.).

Where to find these listings will vary depending on the size of the area covered. Most often, they will be either printed in the newspaper or on the internet.

If there is a property that you are interested in, you will need to contact a real estate agent to gain access. The Department of Veteran's Affairs and the Department of Housing and Urban Development both rely on real estate agents to show the properties. This helps them to eliminate added overhead while leaving the sales end to the professionals.

Foreclosure Auctions- When payments are not being made on a mortgage, the mortgage company is forced to foreclose. They will hire an attorney to advertise and sell the property at a foreclosure auction.

By law, a notice of sale must be made available to the public for a specified period of time. The amount of time will vary between states. Most often, the notice is posted in the newspaper or on the internet. Here is an example of a notice of foreclosure:

TRUSTEE SALE
123 Main Street
Your Town, USA

In execution of a Deed of Trust in the original principal amount of $69,000.00, with an annual interest rate of 10.50% from Mr. ***** dated December 29, 1988 recorded in the Clerk's Office of the Circuit Court of Your Town, in Deed Book #1234, at page 123, default having occurred in the payment of said Note, The undersigned Substitute Trustee will offer for sale at public auction at the county courthouse, on April 10, 1999 at 1:00 p.m. the property described in said deed, located at the above address and briefly described as : Lot 13, Block 21, Main Street.

TERMS OF SALE: CASH. A deposit of $5,000.00, cash or certified check will be required at the time of sale with settlement within fifteen (15) days from the date of sale. Additional terms may be announced at the time of sale. Pursuant to the Federal Fair Debt Collection Practices Act, we advise you that this firm is a debt collector attempting to collect the indebtedness referred to herein and any information we obtain will be used for that purpose.

Mr. *****, Substitute Trustee

For information contact:

Mr. *****, 111 Main Street, Your Town
555-1111, Call Between 9:00 and 11:00,
VP March, 26, 27, 28, 29, 1999

Note the valuable information that is included:

• the address
• original sale date
• amount of original lien
• interest rate
• time and place of public auction
• name of the current owner

With this information, you can determine a lot about the property. Researching it further will depend on how profitable it seems. For example, if the original sale date is only a year or two ago, it is highly likely that there is little or no equity. The borrower has not paid on the mortgage for very long so there is little paid on the original principal balance. Also, there was probably a low down payment involved in the original purchase. If the borrower had the money to make a large down payment, it probably would not be in foreclosure now.

Contrary to the previous example is a property that originally sold fourteen years ago. This property has had time to build equity and would be more attractive.

Pursuing any property further is up to you. The amount of time that you have and the number of foreclosures listed in your area will determine the attention that you give to each.

Notice, in the example, the Terms of Sale. You will normally need about 10% down. Most sales will also require cash or cashier checks. The safest way, in this case, is to bring cashier checks, in variable amounts, made payable to your self. If your bid is accepted, sign over the appropriate check. If not, put the money back into your account. While this is a normal practice, check your own area for down payment requirements. Smaller areas may allow personal checks or added time to get the down payment.

A foreclosure sale can be very confusing. It starts with a reading of the property address followed by legal wording. After this, the subject property is held up for auction. The first bid is generally made from the trustee. The trustee represents the note-holder that has foreclosed. The trustee's bid will most often be what is owed plus costs incurred in foreclosing. After that, anyone else may bid. If the bidding continues past the opening bid, the process will continue until there is only one bidder left. The final sale goes to the highest offer.

When a sale is complete, the proceeds will first payoff the original mortgage, then any subordinate financing in order of position. In the event that there is a second or third mortgage, the note-holders will often enter a bid if there is equity to help recover their losses. If they do not, their interest in the property is limited to any excess proceeds from the sale after paying off the prior mortgage. If it does not cover the debt owed, they will have to pursue the matter elsewhere. They may not attach to the new deed or new owner.

It is very important that if you want to bid on a property, research it first. Your local courthouse will have a history on the property and the owners. This will help you avoid any problems in the event of a federal tax lien or other encumbrances. Also, it will make you aware of any second mortgages that may increase the bidding. The more information that you have, the more comfortable you will be during the bidding process.

Foreclosure auctions are a very complex way to buy properties. They require a little more work but can be the most profitable purchases that you will make.

Before your first bid at an auction, I would recommend two things:

First, contact your attorney to get a complete explanation of the entire foreclosure process. Each state has different rules. One example is the borrowers right of redemption. This right of redemption is the time allowed to pay the back payments and charges so that the property is not lost. It can be up to one year after the sale at auction epending on the state. While this is not very common, be sure to consult your attorney. It can help to avoid any future problems.

Second, go to several and just watch. You will learn a great deal. A good sale will bring many investors. This is a wealth of information. If you ask, they might explain the process better and give you valuable advice. You never know.

BANKS- When a property is foreclosed upon and it is not purchased at public auction, it will become the property of the lender (if it was not a government-backed loan-VA or HUD). Banks are not in the real estate business. They are in the lending business. They do not want to be holding on to idle properties. This ties up cash that could be making them money (interest).

Finding out which properties are bank-owned can often be difficult. One way is to contact the bank directly. It may take several calls, but eventually you will reach the person that handles them. When you do, let them know of your interest and ask what properties they currently have. Remember, you are doing them a favor to buy directly. The bank will save on sales commissions (real estate agents) and time. Over time, you should try to keep a good relationship with the bank representatives. They can be a valuable source.

Many large investors will purchase bank-owned properties in a "block". They will give the bank one amount for a group of properties. These will either be upgraded and sold to the general public or divided and sold to individual investors. While these large investors are really middle-men, do not overlook them. They usually have good deals. It's a volume game to them. If they make a few thousand on each property, they have done well.

Another way to find bank-owned properties is through real estate agents. Many banks will automatically list through real estate companies. In this event, you need to find out which real estate agents handle the bank foreclosures. Each bank will usually use just one agency. Staying in contact with that real estate agent can give you an inside line. If you know about a deal before everyone else, you have a greater chance to get it. This is how many investors get the great deals that you hear about. Knowing the right people is the key.

Remember, there are many places to find great deals. Do not just limit yourself to those above. You need to keep your eyes and ears open because you never know when a deal might present itself.

Tips for Finding Deals:

Do not limit yourself to only one source. While each is an excellent source, look everywhere because you never know when a good deal might appear. A savvy investor will find deals everywhere, and usually before the general public gets access to them.

Before bidding at an auction, do your research. Many deals seem good on the surface but end up differently. A smart investor will do their homework before each sale.

Real estate agents can be very valuable. They are active in the real estate market and hear about deals all the time. They will tell their best clients first, so keep in touch with them.

Let people know what you do. You never know when they may come in contact with a good deal or a potential buyer.

Free Internet Resources for finding investment properties:

• HomeSales.gov - The HomeSales.gov web site provides current information about single family homes for sale by the U.S. Federal Government.
• Ocwen.com - Provides a listing of Dept. of Veterans Affairs Residential properties for sale.
• Office of Property Disposal - Provides a listing of U.S. General Services Administration, Office of Property Disposal properties.
• IRS Auctions - Listing of IRS properties
• Customs - Listing of Real Property Public Auctions
• US Dept. of Agriculture - Listing of properties offered by the USDA.
• US Dept. of Housing and Urban Development - Listing of multi-family properties.