How To Buy A Foreclosure

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. Find New Homes in Brentwood TN

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