Ask Paul Wells

Why Foreclosure Investing?

REAL ESTATE AS A PATH TO WEALTH

According to the Wall Street Journal nearly 70% of all millionaires in the US have at least half of their assets and holdings in real estate. About half of all millionaires in this country used real estate in some form to obtain their wealth. What does that tell you? It tells me that success leaves clues. One of the key elements to being successful in real estate is one’s enthusiasm and attitude towards the profession of creative real estate investing. Attitude is everything.

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Three Benefits of Investing in Real Estate:
1. Cash flow -- Generating consistent monthly cash flow keeps you alive and your business flourishing and moving forward. It is the lifeblood of your success or demise in the real estate business. It allows you to pay for your bills and mortgage and the lifestyle you want to live. Creating a consistent cash flow will allow you to say goodbye to your current career and move into another career even if you are doing the business part time.
2. Tax Advantages --The tax advantages derived from real estate are tremendous if strategies are implemented. It is critical that you have a CPA who is astute in the area of real estate transactions. There are many benefits, all legal, that can create limited tax liabilities.
3. Long-term wealth – This is one of the true values of this business. Real estate riches give you the ability to create long-term wealth, favorable lifestyle, and the wonderful retirement that you seek.

For many people who choose creative real estate as a path to wealth, the vehicle for success can come in many forms. It is up to you to choose what you like to do and do that particular discipline. So why don’t we pick an area where the path of success has the least resistance and larger profits? Foreclosure investing is probably one of the quickest ways to create cash flow in the creative real estate business. From a real estate investor’s standpoint, there’s a plethora of reasons for working in the foreclosure market.
My number one reason for me working the foreclosure market as hard as I do is clearly:
Motivated Sellers -- To me the most important advantage to working in foreclosures is that you deal with homeowners that HAVE to sell, not WANT to sell. If they don’t sell or create a situation that allows them to satisfy the lenders demands for payment they will very likely lose their house and get nothing and they want something after years of living there. In my opinion the absolute most motivated seller is someone who is about to lose his or her house. Doesn’t that just make sense? The person who is about to lose their house has got time working against them, not for them. That is opportunity for you if you can present it in a “win-win” fashion.
Generally when you list a piece of property to sell time is your friend and you can afford to wait, three, six, nine months, even more. I have seen houses on the market for close to 2 years. But a foreclosure property typically has got 60-90 days before it goes to public trustee sale. And depending on the state law, you’ve got 0 to 360 days before the redemption period ends – the time that the homeowner has to try to buy it back.
But, realistically the homeowner has got no more than 1-3 months to find a solution to their property problem. As the clock ticks away, and as the homeowner is either ignoring the situation or waiting for divine intervention, their level of motivation clearly rises with the reality of the situation. To me that is the beauty of the foreclosure market. The motivated seller is clearly the reason for companies like mine having success by investing in foreclosures.
Discounts -- Foreclosure properties are the best way to consistently find fabulous real estate bargains without having to be highly skilled. You are buying equity at a discount and for those you who do not realize it this is a numbers game and the more numbers that you are doing the more deal you are going to find. You are not going to be able to find anything, other than the house is about to fall over, where they are just basically buying the land -- for 50 cents on the dollar. When I say 50 cents on the dollar, I’m talking about a retail price for a house. 50 cents on the dollar is not the norm in foreclosure investing but they do come along. The norm is from 60-80 cents on the dollar. The successful foreclosure investor is able to negotiate with the bank and create his own low loan-to-value price. Basically you are buying the equity of the homeowner at a substantial discount and that is good for you.
Foreclosure investing is a business where you can find bargain price real estate that is available to you at lower than retail prices. Even when times are good there are foreclosures to be had simply because there is always someone in trouble with their finances and in particular their home payments. And obviously when times are bad there are foreclosures to be had because a lot of people are in financial trouble. If you are proficient at finding these deals significant wealth using real estate will come to you.
Quick Closings – It is possible to buy and sell a foreclosure house within 30 days thus creating quick profits for you and your business. The likelihood of getting the deed from a homeowner and finding a buyer and closing within 30 days is more likely in the foreclosure business than any other form of creative real estate investing.
Rehabbing – You are going to have to do some level of rehabbing. With rehabbing you’re making offers to take over cosmetic, structural, and general repair problems that come along with the house. The problem with rehabbing is that you have to pay for your materials up front in order to rehab it. If I buy a rehab property for 50 cents on the dollar I’m going to have to spend 20 cents on the dollar to get it up to where I can sell it for 80 cents on the dollar. That’s not the case in foreclosures. With foreclosures you can get in with less money and sometimes no money at all. Foreclosures are the only way you’re going to be able to consistently find such bargains.
Lease-Options – When I first started in this business I would make offers to people that did not have to sell homes. With the Lease-Options homeowners may have to move or are looking for a job change in another location, they want a bigger house, a smaller house, whatever. In a soft market lease-options are plentiful but in a strong market people will just want to sell their house and walk away with the profits. I really didn’t want to focus on sellers of lease-option deals because the reality is that in order for me to get paid I had to wait 2-4 years, manage the property, and HOPE that the lessee would be able to qualify for a loan to refinance the house. About 75% of lessee’s are not able to refinance and I am then stuck with a house and a contract with an end date that is approaching. I am not a fan of lease options because of the delayed gratification of being compensated and frankly, the reality is that a low percentage of lease options close as planned.

So with all of this being said I would hope that you will come to the same conclusion that I did: Foreclosures will make you wealthy.

Good Luck and Good Investing.

Paul Wells
The Foreclosure King
www.rookietoriches.com

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