Wholesaling pre-foreclosures is a win-win real estate strategy 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.
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 defaulting 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. 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 homeowner, you are 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 to Wholesale?
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 some research to determine the current status and get all of the details on the properties.
Real Estate Agents– Pre-foreclosures 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.
Bandit Signs – The signs you see on telephone poles or on the side of roads. They usually say “we buy houses” or “sell your house fast” etc. They are strategically placed in high traffic areas or areas where you would want to purchase a home. These signs can be ordered online for as little as a dollar a piece. Keep in mind however, that they are illegal to post in some cities, so do your research.
List Providers – You can obtain a pre-foreclosures list online from various list providers such as ListSource, CoreLogic, and Realeflow. Once you have your list you are ready to send direct mail like yellow letters or postcards to these potential sellers. An added bonus to using a direct mail service is that they also provide templates if you are unsure of what to write on your mail pieces.
The problem with these common methods is that they are common. Every beginner like you is trying these methods. Fortunately, more advanced options are available, including:
Lead Generation Software– Real estate investing software ranges from ready-made lead generation websites, like InvestorCarrot, to data-driven lead generation software like PropStream.
Real Estate Investor Software– Some real estate software, like FreedomSoft, was designed especially for wholesaling houses. FreedomSoft helps wholesalers and real estate investors find, evaluate, and manage their motivated seller and pre-foreclosure leads.
How Do I Approach the Homeowner?
Wholesaling pre-foreclosures is an excellent opportunity to turn a profit, but you must remember that it is usually a last-ditch effort for the homeowner to sell their house fast and at a deeply discounted price. Clearly, they have been under financial distress to cause them to go into pre-foreclosure. So 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 Cash Buyers to Wholesale Pre-Foreclosures?
Once the owner has signed your contract, you need to find the right cash 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 auctions.
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 real estate lead generation software that filters for cash transactions.
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 cash buyers list. This will help you build a network of potential investors you can contact with every wholesale deal you have.
Eventually, this 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 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 cannot 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.
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 6 years. If you would like some honest advise about wholesaling houses. Feel free to contact him at anytime.