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    Foreclosure Investing - Buying Bank-Owned Properties (REOs)
    Foreclosure Investing - Buying Bank-Owned Properties (REOs)
    Foreclosure Investing - Buying Bank-Owned Properties (REOs)
    Ebook87 pages2 hours

    Foreclosure Investing - Buying Bank-Owned Properties (REOs)

    By Gene Grossman

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    About this ebook

    Gene Grossman points out the pitfalls to avoid in R.E.O. (Real Estate Owned by the lenders) investing and reveals the 'secrets' that infomercial hucksters brag about in their "Get Rich in Real Estate" spiels, including finding properties, negotiating with banks, calculating property value, using title insurance, the 28:36 credit ratio, buying after the auction, and much more.

    LanguageEnglish
    PublisherMagic Lamp Press
    Release dateNov 22, 2009
    ISBN9781882629701
    Foreclosure Investing - Buying Bank-Owned Properties (REOs)
    Author

    Gene Grossman

    GENE GROSSMAN was born in Chicago, Illinois and raised in the North side neighborhood of Albany Park, where he attended Hibbard Elementary and Von Steuben High School.He pursued majors in psychology, chemistry and mathematics at Wright Junior College, Roosevelt University and Illinois Institute of Technology - all the while working his way through high school and college by playing piano in clubs on Chicago's then-famous "Rush Street."After moving to Southern California, he worked his way through law school playing piano in night clubs and appeared as a musician in seven major motion pictures.While slowly building his law practice, Gene purchased a truckload of movie equipment he rented out to film production companies and then started his own production company which over the years produced more than 50 educational programs on subjects ranting from Boating and Celestial Navigation, to legal subjects (Depositions, Bankruptcy, etc.) Sign Language Instruction and many more.Always having been interested in boating, getting divorced prompted him to buy and move onto a 45-foot Chris Craft motor yacht in Marina del Rey California,.Years later, while serving as navigator on a yacht delivery from the U.S. to Tortola, Gene wrote his first book, "Celestial Navigation for Dummies" (before the popular series of 'Dummies' books was created). He used his own production equipment to shoot a video on the subject Celestial Navigation - "Sextant Use and the Sun Noon Shot" and unintentionally started the nautical video industry in this country.Over the next few years he followed that first title up with more than 50 other educational DVD titles, all displayed on his production company's website at www.MagicLampDVDs.com.Having moved on from doing scripts for his video productions, Gene turned to writing fiction, and now spends most of his time in the marina on his new boat, where he created the 15-book series of 'Peter Sharp Legal Mysteries,' all now available both in print and as eBooks at Smashwords via www.LegalMystery.comIn addition to the 15 Peter Sharp novels, Gene compiled a group of fiction and non-fiction titles that he has either written or edited for others, plus some classic stories: the publishing company he formed (www.MagicLampPress.com) now has more than 60 books in print.The Peter Sharp Legal Mystery Series#1: Single Jeopardy#2: ...By Reason of Sanity#3: A Class Action#4: Conspiracy of Innocence#5: ...Until Proven Innocent#6: The Common Law#7: The Magician's Legacy#8: The Reluctant Jurist#9: The Final Case#10: An Element of Peril#11: A Good Alibi#12: Legally Dead#13: How to Rob a Bank#14: Murder Under Way#15: The Sherlock Holmes CaperThe Suzi B. Mystery Series (a spin-off)#1: ...Sorry, Wrong Number#2: Movie Magic#3: Two Perfect Crimes#4: He's the Guy#5: The Magic BulletsAll 20 of Gene's mysteries are described in detail in a free eBook: The Mystery Books of Gene Grossman: Summaries with the Author's Comments.

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      Book preview

      Foreclosure Investing - Buying Bank-Owned Properties (REOs) - Gene Grossman

      FORECLOSURE INVESTING

      Buying Bank-Owned Properties (REOs)

      Gene Grossman

      © MMVIX Gene Grossman

      All rights reserved

      Smashwords edition 1.0, November, 2009

      CONTENTS

      1. Beating the Odds

      2. Skip the Auction

      3. Getting the Most Out of Your Broker

      4. Let the IRS Help

      5. Working Backwards

      6. Getting Started

      7. Why R.E.O.s?

      8. Let the Negotiating Begin

      9. Lasting Power

      10. Opening the Back Door

      11. Auction Pitfalls –vs- R.E.O.s

      12. Finding the Properties

      13. Title Insurance Companies

      14. The 28:36 Ratio

      15. What Not to Do

      16. Do Not Pass Go

      17. It’s Never Too Late

      18. In General

      ...In Closing

      ...Appendix

      If you feel that this book has been helpful, I strongly suggest (at the express urging of my publisher) that you continue your real estate investing education by obtaining copies of Magic Lamp Productions’ 2-DVD sets on Real Estate Appraisal and Buying Foreclosures. Information on these products is available on their website:

      http://www.magiclampdvds.com

      *****

      1

      Beating the Odds

      In 1994 I bought a residential piece of property in California that had been foreclosed on by the lender. They were asking $175,000 for it, so I called my real estate broker friend and told him to put in an offer of $150,000 for me.

      When he heard the address of the property, he tried to correct me. Ed, you must be mistaken. I remember offering $275,000 for that property just over a year ago, and they turned me down. Even if it’s a foreclosed property, you must have made a mistake about the asking price. I explained that no mistake was made, and he finally agreed to place the offer for me.

      After the negotiations bounced back and forth a few times, I wound up getting the property for less than $160,000. It is now worth over $900,000 – not because of any genius on my part, but because real estate in that area has miraculously skyrocketed during the past decade. But even if the values hadn’t shot up so fast during the period of time that I’ve owned it and done many improvements, normal appreciation would have lifted the value to well over $350,000 – more than twice what I paid.

      The lessons I learned from the experience of obtaining that particular parcel was: first, buying distressed property is a good deal, and second, you should never deal directly with an owner/resident. The reason that the property is in foreclosure is usually because of misfortune: health, financial, domestic, or some other unfortunate event that leaves the property owner/s in a frame of mind that is not receptive to logical reasoning. My broker’s previous offer to the owner/residents were turned down because they were so emotional about their money situation that they couldn’t make a cool, logical business decision, and wound up allowing their financial condition to spiral all the way down to an ultimate foreclosure.

      There’s an old adage about a monkey who saw an apple in a jar. He wanted the apple, so he stuck his hand in the jar and grabbed it. The problem he now faced was that with his hand around the apple, he couldn’t remove if from the mouth of the jar. The solution was simple: all he had to do was let go of the apple, and then remove his hand from the jar... but he didn’t want to let go of that apple. The result? He kept the apple, but his hand stayed in the jar with it. And that’s how many distressed property owners are. Not only is it possible for them to walk away from their home with no debt, but by letting an investor take over their position, they could also wind up with some cash to take with them. This would be tantamount to a solution that would let the monkey get his hand out of the jar with the apple, but the homeowners rarely go for a plan like that. Why don’t they? Well, your guess is as good as mine, but if they’re the type of people who have failed to properly plan for bad times, then maybe they’re just not sophisticated enough to realize the reality of the situation they find themselves in.

      Our research showed that the property was purchased for close to $275,000 and a substantial down payment was made. Not too long thereafter, the purchasers went through a messy divorce proceeding and probably out of spite for each other they let the house go into foreclosure rather than let one of them wind up with it. It took the lender quite some time for the eviction process, and during that period, the house was not properly maintained.

      Dealing with the owners would have been impossible because there was probably no way that they would both agree to anything, no matter how favorable it would have been to them, because they were too pig-headed. I now enjoy a financial gain on that one piece of property of almost $700,000, even after taking rehabilitation costs into consideration. But the true profit is much more than that because from 1995 to 2005 it was rented out for $1,500 per month, bringing in $180,000. On just that one deal, I wound up with a free piece of property. It doesn’t always work out like that , but even once is enough. Life is good.

      - - - - - - - - - -

      The transaction I’ve just described is the reverse of a ‘perfect storm:’ everything went off exactly according to plan, and there were no glitches. That doesn’t happen too often, but if you know what you’re doing, the odds really aren’t against you, and there are several things you can do to put them in your favor. Read on.

      *****

      2

      Skip the Auction

      When a lender starts foreclosure action, in most cases it will result in an auction. Personally, I would rather not bid on property at an auction. My feelings on this matter are for the following reasons:

      A) Opportunity for Inspection. It is limited. There is usually no time to do the proper due diligence required for any other purpose than buying the property as a scraper, meaning that you don’t care what the structure is like, because you plan on razing the property and doing some new construction.

      If you plan on personally using the property or renting it out, you should have the time to conduct the normal inspection process.

      B) The Bid-Down. There used to be a group of property investors in Los Angeles who made it a habit of buying properties at foreclosure sales. They were affectionately referred to as ‘The Forty Thieves.’

      Their usual procedure would be to meet for breakfast before the auction and if one of them decided he really wanted the parcel, he would make an offer to the others that involved him paying them each a thousand dollars or two to not bid against him and

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