6 Reasons Why House Flipping And Selling Preforeclosures Can Earn You Money

Posted by Wendy Poltorek // April 20, 2022 // Avoiding Foreclosure / Blog / Cleveland // flipping and earning during preforeclosure / investing in the real estate / Preforeclosure / renovating / selling an investment property

With the major surge in home improvement projects over the past several years, America is led to believe that buying, renovating, and selling an investment property is a sure-fire way to get rich quickly. However, it is possible to make a nice profit investing in real estate if you know where to begin. A smart and relatively safe way to get your feet wet is in the preforeclosure market.

Preforeclosure is the first stage of the foreclosure process. During this time, the property still belongs to the homeowner, but the lender has initiated foreclosure procedures because payments have not been made and the loan is considered to be in default. This is a critical time for not only the homeowner, but the lender as well. More importantly, it represents a tremendous opportunity for you to make money.

Here’s a little more information about flipping and earning during preforeclosure:

When a home is in preforeclosure, no one is making payments to the bank. Eventually, the bank will go into foreclosure and the homeowner gets nothing besides a substantial blemish on his or her credit. The homeowner will almost always want to walk away with something ‘credit intact’ rather than let the home slip away for nothing. The lender, too, would rather settle the situation before foreclosure so it can guarantee itself a source of cash and not continue to lose money.
A homeowner with a property in preforeclosure is often very motivated to sell. It’s like a nightmare that he or she can’t wait to escape. In fact, a seller usually just wants to get rid of the property to get the lender off his or her back. For this reason, it’s common to buy a house in good condition that is in preforeclosure and create a 30 to 50 percent equity spread. There is a growing foreclosure trend throughout the nation due in large part to a mix of economic uncertainty and bad mortgage loans. And, with interest rates changing constantly, there doesn’t appear to be a quick end in sight. Banks and lenders are willing to work with homeowners in default more than ever because they don’t want to take properties back if they don’t have to.
Lenders prefer to liquidate a bad loan rather than take property back. Therefore, you can request that a lender discount what is owed on its payoff. This strategy, which can’t be done on a loan not in default, can create a large equity spread on a house that is totally “maxed out” with loans. Once you become familiar with the issues that cause lenders to discount, larger discounts can be achieved as you polish your negotiating skills.
Buying a house in preforeclosure allows you to simply take over the existing financing. You don’t need to have perfect credit or qualify for a loan, unlike most of the other opportunities in the industry that often preclude most people from getting involved in real estate investing. You can take title to the property, begin making payments on the existing mortgage(s), and still get all the tax advantages, appreciation, depreciation without any of the risk of being personally liable for the mortgage and the property.
Preforeclosures are a very well defined niche market, which allows you to get deals completed and closed quickly. If you try to be a jack-of-all-trades and go after anything and everything you see, you won’t last long in this business. Put simply, the preforeclosure market is easy to focus on.
Buying a property at foreclosure auction or “at the courthouse” is an experience unlike any other in purchasing real estate. When a property goes to auction, the competition is often fierce and may even be intimidating. In addition, you have to be ready to make a substantial payment immediately. Do yourself a favor and avoid this headache at all costs. Especially, if you can save yourself the grief, time and money by striking a deal beforehand during preforeclosure.