Home   »   Foreclosure Resource Center   »   Locating Lucrative Investment Property Requires Finding Motivated Sellers


If the owner doesn’t sell or pay off the amount owed during pre-foreclosure, investors can bid for the property at the public auction. Auctions often represent great bargain-buying opportunities, but they also represent more risk and more competition from other bidders, according to Marrs, who usually buys before the auction.

The foreclosing bank sometimes bids on the property at the public auction. If the bank is the winning bidder, it takes ownership of the property. Banks are usually motivated sellers since they consider foreclosed properties nonperforming assets and often want to unload them quickly. Many banks are willing to sell foreclosed property below market price as long as they break even.

Judging profit potential
A good investment property is bought below market price and appreciates in value after the purchase. This requires a motivated seller, but it also requires the numbers to work for both the buyer and the seller. A real estate investor should crunch the numbers on any potential investment property to determine if it meets the criteria of a good investment while still meeting the needs of the seller.

The total amount of any debts secured by the property should be significantly below the property’s market value. Investors can research all the debts owed at the county recorder’s office or online using RealtyTrac’s Legal and Vesting Report or Transaction History Report.

RealtyTrac provides estimated market value information for each pre-foreclosure and foreclosure property posted in its database, and investors can order a Comparable Sales Report for a detailed list of comparable sales. If the total amount of debts owed is 20-30 percent below the market value, the investor should continue to pursue the property. If not, the investor should probably move on to another property.

The amount of bargain an investor is happy with can vary depending on the structuring of the purchase agreement. If he can take over the current loan on a property, Marrs is willing to buy it for up to 90 percent of its market value. But if he has to secure a new loan to buy the property, he wants his purchase costs to be at most 75 percent of the market value.

“If I can avoid using my credit or my money, then I’m gaining leverage. The more leverage I can use, the lower risk it is for me,” he said.

In addition to evaluating the potential bargain, investors should consider how to generate a profit after buying the property. Investors should weigh whether reselling or leasing provides a better return on their investment.

If interest rates are low and property values are increasing rapidly, it may be better to resell the property after making any needed repairs and improvements. The cash profit can then be re-invested in more real estate.

Leasing may be a better option if rental property is in high demand. Marrs uses lease options or installment land contracts to sell the property on an installment basis. This allows him to obtain a higher purchase for the property in the long run and maintain a monthly cash flow in the process.

“I look at my exit strategy and entrance strategy at the same time to determine what makes up a good deal,” he said. “It’s not just about the price of the property. It’s about how I can structure financing to make the most amount of profit with the least amount of risk.”