Wholesaling pre-foreclosures is a win-win real estate transaction that benefits homeowners and investors alike, and you can benefit, too. By wholesaling pre-foreclosures, you can spare homeowners from going into foreclosure, which will hurt their credit and worsen their financial situation. You can present excellent opportunities for investors, as well as a more affordable option for home buyers. And, you can make money doing it.
What is Pre-Foreclosure Wholesaling?
In general, wholesaling is buying more for less. The same is true for wholesaling houses. But instead of getting more quantity, like at big-box stores, you are getting more value. When a homeowner is unable to make their mortgage payment for three months, they go into default on their loan. This means their mortgage lender submits an official warning that if they do not catch up on their payments, they will be forced to foreclose on the home.
This interim period between going default and going into foreclosure is the sweet spot for wholesalers. During this time, you can approach the homeowner with an offer that may very well save the day. Also depending on your strategy, you may be able to connect them with a cash buyer or execute an assignment contract with an end buyer in mind.
How Do I Profit from Wholesaling Pre-Foreclosures?
As a wholesaler, you get paid for being the middleman. Your service is to connect the homeowner with the buyer. For the home buyer, you’re presenting viable buyers that can save them from going into foreclosure. Investors, you’re typically offering a fix-and-flip opportunity. For home buyers, you’re giving them an opportunity to buy a home for less than market value. In the end, everybody can come out ahead.
For this service, you are paid an assignment fee. The standard assignment fee is $5,000, but that is not set in stone. Sometimes wholesalers charge less, while others charge significantly more. It depends on the situation and the value of the investment.
How Do I Find Pre-Foreclosures and Buyers or Investors?
There are a few methods to find pre-foreclosures. The most common are:
Public Records: Notices of default are usually filed with the county and are public record. You can obtain a list of pre-foreclosures for free at your county records office. But you must do more homework to determine the current status and get all of the details on the properties.
Real Estate Agents: Pre-foreclosure are usually listed on the MLS, which real estate agents have full access to. However, the listing prices are typically padded to take the realtor’s commission into account.
Online Real Estate Marketplace: Online marketplaces, like Zillow and Trulia, offer search filters to find pre-foreclosures. It is another free option; though, the data may be incomplete or outdated
The problem with these common methods is that they are common. Every beginner like you is trying these methods, only to find a horde of competition. Recently, more advanced options have become available, including:
Lead Generation Software: New real estate software ranges from ready-made lead generation websites, like Carrot, to data-driven lead generation, like Multiverse Digital. Real estate agents are embracing this software in lieu of traditional options because they have a better ROI and reduce the amount of competition.
Real Estate Investing Software: Some RE investing software, like Freedomsoft, specialize in wholesaling. They cater to wholesalers and investors, helping them find, evaluate, and manage pre-foreclosure listings.
How Do I Approach the Homeowner?
You may see wholesaling as an excellent opportunity to turn a profit, but you must remember that it is usually a last-ditch effort for the homeowner. Clearly, they have been under financial distress to cause them to go into pre-foreclosure. You must be sensitive to their situation. Also you do not want to embarrass them or make them feel like you are taking advantage of their unfortunate circumstances.
Many wholesalers take a more generic approach that makes the homeowner feel less like a target, and more like a client. For instance, instead of saying, “I see your house is in pre-foreclosure,” you say, “I’m looking to buy houses in this neighborhood for investors I work with.” It puts the ball in their court instead of you throwing it in their face. Also this strategy will help make the homeowner more apt to listen to what you have to say.
How Do I Find Buyers or Investors for Pre-Foreclosures?
Once the owner has signed your contract, you need to find the right buyer, and you need to do it quickly. Investors are your best bet because they are always looking for a deal and usually have significant cash capital. As a beginner, you will need to be bold in approaching potential investors and employ several strategies, such as:
Networking at foreclosure options
Striking up a conversation with traditionally wealthy people, like your doctor or a lawyer
Advertising with Facebook ads, postcards to affluent neighborhoods, car magnets, and more
Using lead generation software that targets investors
Don’t be discouraged if a lead is not interested in the property you have available now. If they show any interest at all, add them to your Investors List. In no time, you will have a long list of potential investors you can call with every wholesale deal you have. And eventually, that long list will turn into a shortlist of dependable investors that you work with the majority of the time. Though you always want to keep your eyes open for new investors.
The key is to start building your list right away and to keep growing it until the day you retire.
Things You Need to Know Before Wholesaling Pre-Foreclosures
Wholesaling is a very affordable and viable real estate investment strategy that even the most novice beginner can manage. As with any investment, there are factors you need to be aware of to avoid getting yourself into trouble.
Know your state’s regulations: Some states, like Maryland, do not allow you to approach homeowners in pre-foreclosure under any circumstances. Other states carefully regulate what you can and can’t do.
Avoid Prohibited Properties: Assignment contracts are prohibited or restricted for certain property types, such as HUD homes and REOs.
Watch Out for Clauses: Always be sure to review the homeowner’s mortgage contract, which may include anti-assignment or non-assignment clauses. These clauses may prevent the buyer from making a deal with you, or require them first to get approval from their lender.
All in all, there are a lot of opportunities for beginners to make good money from wholesaling pre-foreclosures. It takes little to no money to begin your endeavor since you are utilizing investor money to make the deal work. With boldness and practice, beginners can quickly gain ground and become experienced real estate wholesalers.
J.R. Medrano is a real estate investor who specializes in wholesaling inherited homes. He has been wholesaling real estate in the Corpus Christi, TX area for the past 5 years. If you would like some honest advise about wholesaling houses. Feel free to contact him at anytime.