As an active real estate investor
you probably already know that the most important phase
of your investment is when you buy the property. Most of
us are getting the bargains in the foreclosure market.
You will agree with me that the best time to buy is
before the actual foreclosure. This is commonly known as
pre-foreclosure.If you
ever found yourself in the heat of a foreclosure auction
you would agree that this is not the situation you want
to be in. To get into the pre-foreclosure market you
need to have quick access to all kind of information.
You can imagine that there’s a huge competition in the
pre-foreclosure market. Everybody wants a piece of the
pie and the bigger the pie gets the more people want a
piece.
We are looking at a tidal wave
of new foreclosures within the next 1-3 years. I’m
talking about all the interest only mortgages and
special mortgages that enabled homebuyers to get more
house than they actually can afford. These loans are
converting into higher interest loans or fixed rate
loans. Either way these folks will be looking at about a
40% higher mortgage payment each month. For most
families this will be disastrous.
That’s why I predict a tidal
wave of foreclosures. As a real estate investor you
might say “great”, but in reality it will kill your
business. Residential real estate is typically appraised
through the recent sales comparison method. This means
that the value of your home depends on how the market
works in your area. As an example; you just bought a
bargain foreclosure home in a nice sub division. There
are a total of 50 homes in this development. You got the
house for 30% under market value. Now your purchase
price will be factored in into the comparison model for
the next appraisal.
In itself this is not a big
deal. A small percentage of under market deals will not
spoil the market for the next regular sale. Imagine that
instead of 1 or 2 foreclosure deals all a sudden 5 or 10
foreclosures happen. If you were the first to buy a
foreclosure in this development you’re looking at
financial challenge. Your so called bargain buy
represents the new lower market value. Actually you’re
lucky if you do not own an overpriced piece of
investment real estate. So, watch out for the tidal
wave.
There’s a better way to deal
with foreclosures. This requires a little bit of
negotiation skills and a sincere motivation to help
other people. This is called Forbearance. What does this
mean? It means that you will be in the business to help
people to avoid foreclosure and if you’re successful you
will charge a fee for your services. Forbearance is much
more than just a form of charity. You will actually cash
in on both sides of the foreclosure process.
You will earn a fee for helping
distressed homeowners and if you fail to stop
foreclosure you will have a first hand bid on buying the
property. But your first and most important goal is
always to help the homeowner to keep their property. If
you don’t set this as your primary business mission you
will be out of business in no time. If you fail to build
a circle of trust you will have no business.
Most real estate investors I
know tell me that they are rather take the big checks
once in a while than working in a regular base on a fee
based business. If you’re related to Donald Trump, go
for it. If not, you will have a huge cash flow problem
at hand. With a Forbearance business you will have
control over your cash flow. By simply calculating how
much money you need to pay your bills you can calculate
how many deals you need to do to cover these expenses.
Let’s say you need $8,000 a
month to cover your living costs. At a fee rate of $1000
per Forbearance case, you need just 8 cases per month or
2 per week. The Forbearance business is a full time
business. There’s simply no way that you can negotiate
with lenders after hours. Also you need to be flexible
to talk to homeowners during evening hours and weekends.
Although it doesn’t take a lot of time to work on a
single case it takes a lot of commitment to run this
business. A homeowner trusts you to save his home and
you don’t want to disappoint him.
So why would you step into this
business? Again it’s all in the cash flow. Investing in
real estate is fun, but these big checks are just not
happening every day. You need to pay your bills and
support your family. Forbearance allows you to do
exactly that; generating cash flow. You will have enough
time at hand to hunt for great real estate deals. So you
get the steady income plus the big checks once in while.
I think this is a great real
estate business model and worthwhile to spend more time
researching. Some states regulate the Forbearance
business and some actually have laws in place that don’t
allow you to charge for offering a service like this. Do
your homework before you start and make sure that you
have a good working relationship with a real estate
attorney. You don’t want to start this business without
a real estate attorney.
Sincerely,
Peter Dobler
© 2005
Peter Dobler is a 20+ year
veteran in the IT business. He is an active Real Estate
Investor and a successful Internet business owner. Learn
more about foreclosure investments at
http://www.suncoastrenttoown.com/foreclosuresdaily
or send a blank email to
mailto:suncoastrenttoown@getresponse.com
