Real Estate Investing Facts

How Much Money Do You Need? by Alexis McGee

So you are a thinking of investing in foreclosures, and you’re a bit worried about money. You look at your checkbook and wonder how can you ever start your foreclosure business, when you are so “financially challenged”? If money weighs heavily on your mind, this article is going to put that fear finally to rest!

To begin, when you buy a house from an owner in foreclosure, you are NOT doing a standard deal. Everything is different, including the financing. For instance:

1. You have a very short escrow. Typically 1-2 weeks from the time you sign, to the time you close!

2. You have no time to go through loan approval, appraisal review or underwriting – all standard protocol with a purchase money loan.

So how do you close on a purchase from an owner in default, in such a short time, without going through a full loan application? The answer: You take over the owners existing loans (also know as “Subject to” financing) and bring the balance of funds owed to the seller (based on your purchase price) in the form of cash at closing. (Make sure you read my prior article on “Subject To Financing” for more information.)

For example:

Your owner is in default on his $225,000 loan. His house is worth today (after you do your repairs/cleanup) $400,000. You have agreed to buy his house for $260,000. (You used my formula of $400,000 x 70% less $20,000 for repairs.)

1. Your purchase price would be $260,000.

2. You would take over his existing loan Subject to for $225,000.

3. You would bring to the close of escrow $35,000 plus closing costs (the buyer should always pay these).

4. On close of escrow, the seller’s foreclosure is stopped because you brought the loan current out of the $35,000. You will get a Grant Deed signed by the seller and you now own the house. Your seller will get his $35,000 (less the amount needed to bring his loan current) and move to a new place. You’ve just done a win-win deal!

5. Over the next few months you make payments on the seller’s loan to keep it current. If you do not, the lender can foreclose on you and take your house.

6. Once the house is fixed up, you sell it for $400,000. There will be a new buyer with a new conventional loan. You give him the time to go through a full loan application. When your new buyer closes, your seller’s loan that you took over is finally paid off. Your seller doesn’t get a dime (he was already paid when you bought the house). You get all the net proceeds from the sale and your profit goes in your bank account. Your buyer gets a great house that is move-in ready.

Now if you have $35,000 plus closing costs, GREAT. You can do this deal! You will still need to find some money or a line of credit to do the $20,000 of repairs and cover monthly expenses (like the payments on the mortgage you took over subject to). In the end, you will get to keep all the profit! So in the same example your profit would be:

$400,000 x 15% = $60,000! A fantastic return for only 3-4 months work!

BUT… what if you DON’T have the $35,000 and the rehab money? Then what do you do?

I know that is what has been keeping you up at night and holding you back from getting started in this business. But the answer is simple:

You find another investor to assign your contract to for a finder’s fee!

What’s a finder’s fee? Well, when you got that seller to sign a purchase agreement for $260,000… you now have a very valuable commodity! There are COUNTLESS investors out there who have lots of money. Money they need to invest… but they don’t trust stocks and hate the returns in the bond market. They love real estate, but the problem is they don’t have the time to find the deals. So they advertise in the paper. They put up signs. They tell everyone they know they are looking for deals and will pay handsomely if someone brings them one.

So why can’t that someone be you? IT CAN BE and IT WILL BE!

I highly recommend you do contract assignments when you first get started. This allows you to get paid immediately (you get paid when the seller gets paid at the close of the purchase escrow)! Then you can get out there and buy another house and not be tied down doing repairs and trying to sell houses. It’s a great way to spend you time and get paid incredibly well at the same time!

So how much do you think a person would be paid for finding the above deal? There is a $60,000 profit out there that you are going to give to someone. Would they pay $10,000 or $20,000 for that opportunity? YOU BET! And guess what? You didn’t need a PENNY to do this!

So relax, you don’t need money to start your foreclosure business. You need the knowledge to know HOW to find, structure and close the deals, and find investors – so the money will FLY AT YOU when you get one. And that’s what I’m here for. If you haven’t taken the leap yet, here is where you begin.

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