5 Rookie Mistakes When Buying Foreclosures

Hey, gang. Today we’re going to talk about 5 rookie mistakes that you never want to embarrass yourself by making. So let’s hop right to it…

#1 Don’t Bank on the Bank

Many investors base their bid on a property based on the sale price the bank has listed.

For example, some rookies simply take the bank price and reduce it by 30% and that’s their bid. The problem here is that the bank’s listing price may or may not have anything to do with the actual value of the home.

You should never base your price on anything other than your due diligence research. Get your price by calculating the market value, add the amount of repairs and then work in your profit.

# 2 Don’t Put All your Eggs in One Basket

If you do put all your eggs in one basket – you just might lose your whole nest egg.

Yes, you need to go through real estate agents and use the MLS, but you also need to be open to other routes such as going to the banks themselves. You never want to miss opportunity when it’s knocking at your door.

#3 Stay Out of Them Big Boy Britches

In addition to going through Realtors, you should go directly to the REO broker. While this is true, one common mistake most rookies make is by acting like a “big boy” investor and putting on their “big boy” pants. By doing this they, in their eyes, will be taken more seriously. Their script goes something like this:

Hi I’m an active investor in the area and I have 6 figures available to me and I’m looking to buy 4-6 houses this month. I would like to talk to you about any houses you have or might have down the line in my area. Can you give me a call?

The problem with this is that it’s supposed to dangle a carrot over the broker’s head while you pretend as if you are a cash player but, first off, you’re lying. And second, everybody has a BS meter and brokers can tell when you are full of it. They’ve heard that line, or something like it, too many times before, so when they hear it they’re just going to shut down and tune you out.

It’s much better to be real and authentic when you reach out to the REO brokers. Be transparent, admit you’re a new investor and that you have noticed that they have listed a number of REO properties and you’d like to ask them how you might go about winning some of their bids. Lots of times these guys will respond better to someone who is open and transparent and admits their greenness.

People like to give advice and feel like they are helping someone. So, basically, faking it so REO investors will do deals with you does not appeal to them and it isn’t a very good strategy.

# 4 No Flimsy Proof of Funds

It used to be that you could get a letter from a transactional funder and use the letterhead as proof of funds and they would accept it. Nowadays, it’s few and far between that a broker will accept a letter like that. They know that they are easy to get and that you can buy them on the internet, so what’s the point?

Nowadays, most REO brokers want to see a copy of a bank statement with an amount of money in it or they want to see something that’s printed off a statement of an account where funds are actually held.

#5 Exit Gracefully

You need to know your exit strategy.

So many people believe they are going to make money just by finding a discounted property, but this is not always true. You need to have a market to turn around and sell to.

For example, you might find a deeply discounted fixer-upper, but if you don’t know any cash buyers that work in rehab, you’re screwed. If you don’t know what kind of properties you can resell successfully, then you don’t know what properties to look for from the beginning.

That’s all 5 – rookies – know them and follow them.

Chow for now