Buying Foreclosures Without Cash or Credit! (Foreclosures… to Chase or Not to Chase?)
The short answer is, “Yes”, I’ve bought a ton of foreclosures, and I’ve bought houses at every single stage of foreclosure.
I’ve bought foreclosures from banks through Realtors, which are called REOs. REO stands for Real Estate Owned (by banks). They’re called REOs after they’ve been through the foreclosure auction process and have been taken back by the bank. After the bank gets it back, then they usually list it for sale with a Realtor. So I’ve bought a ton of REOs through Realtors.
I’ve also bought a ton of Pre-foreclosures, i.e. which means buying houses before the actual foreclosure auction. I usually buy the pre-foreclosures directly from the property owners (i.e. no Realtors involved). I’ve even bought houses less than 24 hours before the auction!
So, yes, I’ve bought houses before the foreclosure auction, at the auction, and after the auction. I’ve done it all three ways.
Another specific aspect of foreclosures is Short Sales, and I’ve also bought quite a few short sales. Some investors have made an entire business just out of specializing in buying Short Sales.
A Short Sale is where the people are behind in their payments, and they owe more on the property than what the property is currently worth, and/or what the bank thinks it’s currently worth. As a result, the bank is willing to sell the property to some other third party (not the people living in it) for less than what the mortgage balance is.
So let’s say that the mortgage balance is $200,000 and the property’s only worth $150,000. That’s the kind of situation that happened on a widespread basis back in the market crash of 2008. There were a lot of people who were “underwater” with their houses (meaning that they owed more on the property than what it was worth).
The banks just had so many foreclosures, and they knew that they weren’t gonna recoup all that money. So they were kind of forced to allow the homeowners to sell the properties to 3rd parties, for less than what the mortgage balances were.
This situation could happen on a large scale in any economic downturn either nationally, on a state level, or even local to a county or city. It’s too early to tell, but we could end up seeing more Short Sales as a result of the coronavirus pandemic either soon, or in the near future, over a period of months or even years.
Now a related question is… and this is often what people are really asking me when they ask me the first question…
“Are You Focusing On Looking For Foreclosures?”
So I wanna make it clear that, in general, I don’t chase foreclosures, especially when I’m not dealing with Realtors.
If I’m dealing with Realtors, then there are times when I will be specifically looking for REOs. But when it comes to For Sale By Owners (FSBOs), no I do not usually chase foreclosures as my primary marketing strategy.
Of course, there are times when I have marketed to people that were in foreclosure, but that’s not my main focus.
I’d much rather have the people in foreclosure contacting me, rather than me contacting them!
When people are contacting me through my marketing efforts to the general public, a lot of times they’re behind in their payments, so that is, by definition, a “Pre-Foreclosure”.
This means that they’re currently behind in their payments, and the bank has started the foreclosure process by filing a foreclosure on them. Then they see my advertising and decide to contact me. So I don’t chase foreclosures, because I’d rather have foreclosures chase me!
When I put my marketing out there to the general public, I’m gonna get people contacting me that are NOT in foreclosure, and people that ARE behind on payments and/or in foreclosure. So my current marketing plans these days do not involve chasing people in foreclosure.
You can make a whole business out of chasing people in foreclosure, as many investors do, but it’s just not my preference.
Again, although I buy my fair share of Foreclosures, Pre-Foreclosures, REOs, and Short Sales, I don’t purposely chase any of these deals, as I’d much rather have these deals chase me!
Now you might say, “Well, Todd, why not chase foreclosures?” Well, I’m glad you asked! LOL
The problem with foreclosures, as I see it, is that in my style of real estate investing I want to invest without what? I wanna invest without cash, and I wanna invest without credit.
With foreclosures, by definition, they’re already behind in their payments. In order to bring those loans current, somebody has to come up with cash to cover all of those back payments, just to even be able to take over the Seller’s loan and start from ground zero.
As a result of the market crash of 2008, banks had so many foreclosures that the market was flooded with foreclosures, and banks had to slow down processing them all to a turtle’s pace!
So it became not uncommon to see a situation where people might be 1 whole year behind, or two years behind in their payments! In fact, we’ve seen many, many people 12-24 months behind where the bank hadn’t even started the foreclosure process!
In a normal market, the bank would normally begin foreclosure in judicial foreclosure states, like Ohio where I live, after 90 days, where they’d only be 3 months behind!
This is a situation that if I wanted to take over their mortgage and start making payments, at some point it would require coming up with 12-24 months’ worth of payments in cash to bring those payments current.
Another possibility would be a mortgage restructuring, but that’s something they’re more likely to do for a homeowner than an investor, and there’s no guarantee that the terms would be favorable for an investor. It would be worth looking into having the homeowner do that, though, prior to taking over their loan… but that’s beyond the scope of this discussion.
And the answer is “no”, it probably won’t work… but if you move away it’ll probably start working! LOL
But seriously, if there are houses where you live, then yes, the methods that I teach of buying property without cash or credit will definitely work in the area that you live!
That little joke comes from the fact that most people are always looking for an excuse to talk themselves out of their own success… Whereas successful people are always looking to be the exception to the rules of mediocrity, that others choose to live by.
Anywhere there are houses, there’s always a demand for real estate investing, because everybody’s gotta live somewhere.
And the situations that allow us to buy houses without cash or credit occur to everybody, in every area.
People are having job transfers, people are losing their jobs, people are getting promoted, people are getting demoted.
People are dying, people are being born. As the family expands, the family may need to get a bigger house, and eventually they may need to move to a different school district.
When there’s a death in the family and the deceased owned real estate, that often creates probate and estate settlement situations.
So let’s just say it’s a $200,000 property, and let’s just say for the heck of it, to make the numbers really easy, that the payments are $1,000 a month.
And let’s also say that they’re 12 months behind, so that’s $12,000 that they’re behind and needed to bring the loan current.
Now in my style of investing, if you’ve been following my blog, my videos, or heard me speak before… then you already know that obviously I’m not gonna come up with that $12,000 myself!
I’m gonna find a Buyer, or Tenant/Buyer that I’m gonna sell that property to, to come up with the money.
So let’s say that on that $200,000 house, maybe I can collect $20,000 from my Tenant/Buyer on a Lease Option.
Now out of that $20,000 that I collect, I’m gonna have to use $12,000 of it to bring my Seller’s underlying loan current, right?
And of course, since I’m investing without cash or credit, up to this point I’ve given my Seller ZERO dollars, right?
So instead of me making $20,000 upfront, because I’m giving the seller zero for a down payment, and collecting $20,000 from my Tenant/Buyer… where I’d make a quick twenty grand…
Now, instead, I gotta give the bank $12,000 just to bring the Seller’s loan current. So now instead of me making $20,000 upfront, I’m only making $8,000 upfront.
Obviously, I would prefer to make the whole $20,000 than the $8,000, right? LOL
Now I could still do that deal, and I might still consider doing that deal, if that deal came to me (rather than me looking for it), right, because what? I’m still gonna make $8,000 on the front end.
But again my, preference would be to focus on deals where… given those same numbers, with that same scenario… I’m gonna make the entire $20,000 on the front end.
So the reason that I don’t chase foreclosures is that foreclosures need money to bring the loan current, which is going to deplete my profits.
However, having said that, obviously, you can see that you can still actually afford to do that all day long… if you’ve got $20,000 coming in, and only $12,000 going out… you’re still $8,000 ahead, right?
It’s just that these days, where I’m at in my investing career, I just prefer not to chase those deals or focus on those types of deals that require any cash upfront.
As you graduate in your skill level, you’ll get more selective with your deals, as I have done. Or maybe you won’t, lol. But the bottom line is, either way, if you follow the right principles and right strategies, you’re gonna make money and achieve the financial freedom that you desire.
The beauty of real estate investing is that it’s such a profitable business, and such a forgiving investment… That even if you don’t do it quite as “intelligently” as somebody else… You can still make money!
Because there’s really no “wrong” way to make a profit, right? As long as you’re doing it legally, ethically, and morally.
Now for completeness, I should mention that if I was gonna do that deal where I have to bring $12,000 to bring the loan current, I could also get that money from a Private Lender, instead of from a Tenant/Buyer.
A Private Lender is a private individual, not a bank, not a hard money lender, and not somebody that’s in the business of loaning money.
They’re often a busy professional, or retiree, or somebody with a dormant 401k or IRA, or anybody that’s unhappy with their money sitting around at embarrassingly low bank rates. Often those people will choose to loan me their money to facilitate real estate deals. It’s a win/win situation. It allows me to never run out of money to do deals, and I can pay them SEVERAL times what they are currently making at their bank, or in their dormant 401k or IRA accounts.
Now the other thing is… what I really like to do…
Like I said I’m gonna be putting my marketing message out there, so I’m gonna get people contacting me that’re in foreclosure, people that ARE behind on their payments, and people that are NOT behind on their payments.
So what I really like to do is… I much prefer to deal with the people who are just about to be behind on their payments!
So they’re not even behind on their payments YET, and they’re contacting me, and saying…
“Hey Todd, I think I’m GONNA be behind on my payments if I don’t get this house sold soon”
That’s what I really wanna hear. Because I can solve that problem without any upfront cash. They’re not behind on their payments, yet so I don’t need any money to bring their loan current!
So those will be good candidates for me to just take over their payments. I’m gonna take over their payments without having to bring the loan current. That’s the ultimate scenario that I’m looking for.
So again, this answers the question of why I don’t chase foreclosures. I’d rather just put my marketing out there to the general public, and have the different scenarios come to me, and then I can cherry-pick, and literally pick and choose which deals that I wanna spend my time and efforts on…
And I’m gonna focus on the deals that require less cash… and preferably no cash no credit!
Ready to step up your game?
Check out my step-by-step real estate investing courses for both beginner and advanced investors.
Are you looking for a 1-On-1 real estate investing mentor?
Check out my Monthly Coaching and/or Hourly Consulting Programs.
The short answer is, “Yes”, I’ve bought a ton of foreclosures, and I’ve bought houses at every single stage of foreclosure.
I’ve bought foreclosures from banks through Realtors, which are called REOs. REO stands for Real Estate Owned (by banks). They’re called REOs after they’ve been through the foreclosure auction process and have been taken back by the bank. After the bank gets it back, then they usually list it for sale with a Realtor. So I’ve bought a ton of REOs through Realtors.
I’ve also bought a ton of Pre-foreclosures, i.e. which means buying houses before the actual foreclosure auction. I usually buy the pre-foreclosures directly from the property owners (i.e. no Realtors involved). I’ve even bought houses less than 24 hours before the auction!
So, yes, I’ve bought houses before the foreclosure auction, at the auction, and after the auction. I’ve done it all three ways.
Another specific aspect of foreclosures is Short Sales, and I’ve also bought quite a few short sales. Some investors have made an entire business just out of specializing in buying Short Sales.
A Short Sale is where the people are behind in their payments, and they owe more on the property than what the property is currently worth, and/or what the bank thinks it’s currently worth. As a result, the bank is willing to sell the property to some other third party (not the people living in it) for less than what the mortgage balance is.
So let’s say that the mortgage balance is $200,000 and the property’s only worth $150,000. That’s the kind of situation that happened on a widespread basis back in the market crash of 2008. There were a lot of people who were “underwater” with their houses (meaning that they owed more on the property than what it was worth).
The banks just had so many foreclosures, and they knew that they weren’t gonna recoup all that money. So they were kind of forced to allow the homeowners to sell the properties to 3rd parties, for less than what the mortgage balances were.
This situation could happen on a large scale in any economic downturn either nationally, on a state level, or even local to a county or city. It’s too early to tell, but we could end up seeing more Short Sales as a result of the coronavirus pandemic either soon, or in the near future, over a period of months or even years.
Now a related question is… and this is often what people are really asking me when they ask me the first question…
“Are You Focusing On Looking For Foreclosures?”
So I wanna make it clear that, in general, I don’t chase foreclosures, especially when I’m not dealing with Realtors.
If I’m dealing with Realtors, then there are times when I will be specifically looking for REOs. But when it comes to For Sale By Owners (FSBOs), no I do not usually chase foreclosures as my primary marketing strategy.
Of course, there are times when I have marketed to people that were in foreclosure, but that’s not my main focus.
I’d much rather have the people in foreclosure contacting me, rather than me contacting them!
When people are contacting me through my marketing efforts to the general public, a lot of times they’re behind in their payments, so that is, by definition, a “Pre-Foreclosure”.
This means that they’re currently behind in their payments, and the bank has started the foreclosure process by filing a foreclosure on them. Then they see my advertising and decide to contact me. So I don’t chase foreclosures, because I’d rather have foreclosures chase me!
When I put my marketing out there to the general public, I’m gonna get people contacting me that are NOT in foreclosure, and people that ARE behind on payments and/or in foreclosure. So my current marketing plans these days do not involve chasing people in foreclosure.
You can make a whole business out of chasing people in foreclosure, as many investors do, but it’s just not my preference.
Again, although I buy my fair share of Foreclosures, Pre-Foreclosures, REOs, and Short Sales, I don’t purposely chase any of these deals, as I’d much rather have these deals chase me!
Now you might say, “Well, Todd, why not chase foreclosures?” Well, I’m glad you asked! LOL
The problem with foreclosures, as I see it, is that in my style of real estate investing I want to invest without what? I wanna invest without cash, and I wanna invest without credit.
With foreclosures, by definition, they’re already behind in their payments. In order to bring those loans current, somebody has to come up with cash to cover all of those back payments, just to even be able to take over the Seller’s loan and start from ground zero.
As a result of the market crash of 2008, banks had so many foreclosures that the market was flooded with foreclosures, and banks had to slow down processing them all to a turtle’s pace!
So it became not uncommon to see a situation where people might be 1 whole year behind, or two years behind in their payments! In fact we’ve seen many, many people 12-24 months behind where the bank hadn’t even started the foreclosure process!
In a normal market, the bank would normally begin foreclosure in judicial foreclosure states, like Ohio where I live, after 90 days, where they’d only be 3 months behind!
This is a situation that if I wanted to take over their mortgage and start making payments, at some point it would require coming up with 12-24 months’ worth of payments in cash to bring those payments current.
Another possibility would be a mortgage restructuring, but that’s something they’re more likely to do for a homeowner than an investor, and there’s no guarantee that the terms would be favorable for an investor. It would be worth looking into having the homeowner do that, though, prior to taking over their loan… but that’s beyond the scope of this discussion.
So let’s just say it’s a $200,000 property, and let’s just say for the heck of it, to make the numbers really easy, that the payments are $1,000 a month.
And let’s also say that they’re 12 months behind, so that’s $12,000 that they’re behind and needed to bring the loan current.
Now in my style of investing, if you’ve been following my blog, my videos, or heard me speak before… then you already know that obviously I’m not gonna come up with that $12,000 myself!
I’m gonna find a Buyer, or Tenant/Buyer that I’m gonna sell that property to, to come up with the money.
So let’s say that on that $200,000 house, maybe I can collect $20,000 from my Tenant/Buyer on a Lease Option.
Now out of that $20,000 that I collect, I’m gonna have to use $12,000 of it to bring my Seller’s underlying loan current, right?
And of course since I’m investing without cash or credit, up to this point I’ve given my Seller ZERO dollars, right?
So instead of me making $20,000 upfront, because I’m giving the seller zero for a down payment, and collecting $20,000 from my Tenant/Buyer… where I’d make a quick twenty grand…
Now, instead, I gotta give the bank $12,000 just to bring the Seller’s loan current. So now instead of me making $20,000 upfront, I’m only making $8,000 upfront.
Obviously, I would prefer to make the whole $20,000 than the $8,000, right? LOL
Now I could still do that deal, and I might still consider doing that deal, if that deal came to me (rather than me looking for it), right, because what? I’m still gonna make $8,000 on the front end.
But again my, preference would be to focus on deals where… given those same numbers, with that same scenario… I’m gonna make the entire $20,000 on the front end.
So the reason that I don’t chase foreclosures is because foreclosures need money to bring the loan current, which is going to deplete my profits.
However, having said that, obviously, you can see that you can still actually afford to do that all day long… if you’ve got $20,000 coming in, and only $12,000 going out… you’re still $8,000 ahead, right?
It’s just that these days, where I’m at in my investing career, I just prefer not to chase those deals or focus on those types of deals that require any cash upfront.
As you graduate in your skill level, you’ll get more selective with your deals, as I have done. Or maybe you won’t, lol. But the bottom line is, either way, if you follow the right principles and right strategies, you’re gonna make money and achieve the financial freedom that you desire.
The beauty of real estate investing is that it’s such a profitable business, and such a forgiving investment… That even if you don’t do it quite as “intelligently” as somebody else… You can still make money!
Because there’s really no “wrong” way to make a profit, right? As long as you’re doing it legally, ethically, and morally.
Now for completeness, I should mention that if I was gonna do that deal where I have to bring $12,000 to bring the loan current, I could also get that money from a Private Lender, instead of from a Tenant/Buyer.
A Private Lender is a private individual, not a bank, not a hard money lender, and not somebody that’s in the business of loaning money.
They’re often a busy professional, or retiree, or somebody with a dormant 401k or IRA, or anybody that’s unhappy with their money sitting around at embarrassingly low bank rates. Often those people will choose to loan me their money to facilitate real estate deals. It’s a win/win situation. It allows me to never run out of money to do deals, and I can pay them SEVERAL times what they are currently making at their bank, or in their dormant 401k or IRA accounts.
Now the other thing is… what I really like to do…
Like I said I’m gonna be putting my marketing message out there, so I’m gonna get people contacting me that are in foreclosure, people that ARE behind on their payments, and people that are NOT behind on their payments.
So what I really like to do is… I much prefer to deal with the people who are just about to be behind on their payments!
So they’re not even behind on their payments YET, and they’re contacting me, and saying…
“Hey Todd, I think I’m GONNA be behind on my payments if I don’t get this house sold soon”
That’s what I really wanna hear. Because I can solve that problem without any upfront cash. They’re not behind on their payments, yet so I don’t need any money to bring their loan current!
So those will be good candidates for me to just take over their payments. I’m gonna take over their payments without having to bring the loan current. That’s the ultimate scenario that I’m looking for.
So again, this answers the question of why I don’t chase foreclosures. I’d rather just put my marketing out there to the general public, and have the different scenarios come to me, and then I can cherry-pick, and literally pick and choose which deals that I wanna spend my time and efforts on…
And I’m gonna focus on the deals that require less cash… and preferably no cash no credit!
Ready to step up your game?
Check out my step-by-step real estate investing courses for both beginner and advanced investors.
Are you looking for a 1-On-1 real estate investing mentor?
Check out my Monthly Coaching and/or Hourly Consulting Programs.