New investors often worry that there will be too much competition for short-sale foreclosures, but we are here to tell you that there will always be distressed home-owners, for whatever reason, who need your help! There are millions of foreclosures each year in the United States. There is also an equal number of divorces, bankruptcies, probate situations, layoffs, reloca¬tions, and illnesses. The list is endless. We try to buy directly from the distressed homeowners when possible, because it saves them from a final foreclosure on their credit report: however, don’t overlook the hundreds of thousands of bank-owned properties. The banks are inundated with foreclosures and will be for years to come.

Here are our favorite and most profitable ways to find great deals.

Buying Bank-Owned Properties for Pennies on the Dollar

As we said, we prefer to deal directly with distressed homeowners; however, banks have great deals, too. One of the team players you will need in order to buy bank-owned properties is a real estate agent. This agent will play an important part in your success.
The easiest way to find an investor-friendly real estate agent is to attend your local Real Estate Investors Association group.

Another method is to contact the real estate owned (REO) depart¬ments of major banks and ask the reps where they send their foreclo¬sures once they take the properties at the sheriff’s sale. The rep will give you the local real estate office that lists the bank’s foreclosures. Go to that office in person and meet the agents. These agents work with the banks, foreclosures, and, most likely, investors.

Our agent searches the Multiple Listing Service (MLS) constantly looking for deals using key words like:

• Handy.
• Fire damage.
• Foreclosure.
• Tender loving care (TLC).
• Bank-owned.

These words usually mean there was some type of distress and the bank now owns the property. Since banks are in the business of lending money and not owning properties, they are receptive to selling these properties below market price.

When we make a low offer to the bank, we like to justify it.

Let’s say the bank is asking $85,000 on a property worth $100,000. We usually offer 50 percent of the retail value. In this case, we’d offer $50,000.

Will you get some of these low offers? Believe it or not, yes! We average at least one deal a month from our agent. The agent prepares the offer, and we include:

• Pictures of the damage to the property.
• Low-priced comparable properties (comps).
• A cover letter stating why we are offering less than market price.
• Articles from the newspaper showing problems with the neigh¬borhood.
• A cash offer.
• Closing in 30 days.
• No inspection period.

Do these items help? We think so. Banks are in the business of lending money. Having a number of defaulted properties on their books does not make them look good in the eyes of their sharehold¬ers. The banks are as anxious to get rid of these properties as you are to buy them.

We also make our offers without requiring an inspection period. The bank gives us one anyway to avoid a lawsuit later should the property have a major problem. The bank typically gives seven to 10 days for inspections. We make cash offers, do not require inspections, and state that we will close quickly so the bank will take our offers seriously.
If the property is in decent shape, other investors will make offers as well. The stronger your offer, the better your chances for a yes from the bank.

When you buy properties directly from the bank, you cannot use a deposit as you can with an individual homeowner. Banks usually want at least $1,000 with the initial offer. The bank will give you seven to 10 days for inspections. Read the inspection clause carefully to ensure that your deposit will be refunded for any unsatisfactory inspection obtained by you that would cause you to cancel the contract. At the end of the inspection period, if you plan to stay in the deal, a larger deposit will be due. During the inspection period, you will find a rehabber, get the property under a second contract, collect a large deposit from the rehabber and then use that deposit for the bank, making sure that your second contract discloses this fact.

If you are unable to find a rehabber during the inspection pe¬riod, simply tell the bank you have decided not to purchase the property. The contract will be cancelled based on unsatisfactory in¬spections and the bank will give back your $1,000 deposit.

Being a new investor, you may want to complete a few deals with homeowners before you move on to bank-owned properties. The banks are easy to deal with, but if you don’t close (after the inspection period expires, for any reason), they will keep your offer before another investor gets the deal. Situations will vary, so legally be the intermediary putting buyers and sellers together, and earn a lucrative living doing it!