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You are a real estate investor. Your goal is to buy a few houses in your neighborhood at the best price possible. So you target foreclosures, right? First you will need to find a local foreclosure listing service (such as Foreclosures.com). Most large cities have them, and they save a lot of time.
Then comes the "weeding" process. You are weeding in order to keep only those leads with equity. The more equity you find, the more profits for you! Here is my simple four-step weeding process:
Step one
I start by property zip code. I suggest you start with where you live and then go out about ten miles. In my area, that gives me about seven zip codes and keeps me very busy. You will have to do some testing to determine which zip codes will get you the volume of deals you are seeking.
Step two
Next, you'll need to weed out anything that is NOT one to four units residential. I keep only the leads for single-family homes, duplexes, triplexes, quadplexes, town homes, and condominiums.
Step three
Then you'll need to determine your target resale value range. I suggest you stay close to the median price. In my area, my resale value range is $200,000 to $300,000.
Stay away from the "low-end" resale homes. They tend to be costly during renovation. (Items simply walk out the door when you are not looking.) Stay away from the "high-end" homes, too. If you don't sell them quickly, the carrying costs will kill you.
Step four
Finally, I look for equity by comparing the "resale value" to the "loan in foreclosure." Using the "top value" of the range, I figure the loan-to-value (LTV) percent for this deal. Anything 70% or less is a KEEPER!
I used the higher end of the range, as my house will be totally fixed up and sold three or four months down the road. I will most likely get MORE than this top end range. Remember, this is just a "quick value" NOT the actual resale value when I sell it.
For example:
The Market Valuation Range is $230,000 to $270,000
I take $270,000 as my resale value
I divide the $270,000 resale value into the loan in default. In this case, the loan is $170,000
This is a 63% LTV deal. It is less than 70%. It is a keeper!
Okay, now you know how I "weed my leads". Your next question should be, "What do I do now?" Get on the phone!
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