How to
Buy a Foreclosure Property - 4 Ways to Make Money Without Getting a Loan
By Erik Pearson
If you don't want to get a loan, there are still some ways you can make
money with properties in foreclosure. Here's a quick summary of 4 methods:
1) Partnerships - If you can find a foreclosure and prove its a
great deal, then you'll have access to all the money you need. It's
usually easy to start small with friends and family. Take them to see the
property; show them the comparables; and, explain the repairs/improvements
you'll make. Once you have a track record, you can approach larger, more
sophisticated investors and form limited partnerships. This basic strategy
has been used to acquire some of the most expensive properties in the
country.
2) Assigning a Contract - If you have a contract to buy a piece
of property below market, that contract has value in itself; unless
specifically forbidden in the contract, you can sell (assign) your right
to purchase the house to someone else. For example, if you find a house
needing $10,000 in repairs and worth $60,000 once fixed up, you could make
an offer of $25,000. Then, you could sell the contract for $2,000 to
another investor. The other investor now has $27,000 in the property, and
you made $2,000 without spending a cent.
3) Buying Paper - This strategy is more advanced but worth
noting. Private individuals sometimes hold 1st or 2nd mortgages on
property, and these mortgages frequently go into default. Once in default,
these individuals don't know how to proceed. At this point, you can step
in and offer cash for the mortgage, then you can use a variety of
strategies to make money. You can foreclose and sell; you can send the
mortgage to a collections agency to recover payments; or, you can
advertise and sell the mortgage to another investor.
4) Sandwich Lease-Option - These last two strategies only work
if someone is close to foreclosure but the homeowner still owns the house.
With a sandwich lease-option, you would approach a distressed homeowner
and offer to lease the house from them for enough to cover their mortgage;
you would also negotiate an option to purchase the house for a certain
amount. Then, you would advertise and find someone to lease from you and
purchase the home at a certain amount. If the person you find is paying
more per month than you are, then you're making money every month; if the
person you find is willing to pay more for the house than your option
amount, you make money at the sale. You must let homeowners know that
you're not going to pay on the rent until you can find someone to rent
from you, so the key to this strategy is finding homeowners who a
desperate enough to let you try to find a renter for them because they
don't have anything to lose and finding good tenants who you can help get
approved to purchase the home.
In order to use these strategies, you'll need access to lists of
foreclosures or homeowners who are close to foreclosure (pre-foreclosure).
Online Foreclosure and Pre-Foreclosure Lists
Erik Pearson is a real estate agent serving Franklin, Brentwood, and
Spring Hill, TN and is the author of multiple articles covering a variety
of real estate topics.
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