Strategy #1 - Stop Foreclosure Services
This strategy works best for a homeowner who is in foreclosure, wants to keep the house and has the financial resources necessary to keep the house. A homeowner that falls in foreclosure in this scenario usually has done so because of a temporary situation that has now been rectified. For example, let's say you have a homeowner that lost a job. As a result of the job lost, he or she got behind on payments and is now in foreclosure. Now let's say that they got a new job and they can afford to make mortgage payments. However, what they cannot afford is having to make all of those back payments that are necessary to bring their loan current.
By offering stop foreclosure services, you can help the homeowner by negotiating with the bank to arrange a loan modification or forbearance plan. This is when the bank agrees to modify the terms of the loan to allow the homeowner to bring the loan current by restructuring it to be more affordable.
How do you make money? In return for negotiating with the bank, you charge the homeowner a fee for your services. Just keep in mind in many states, you cannot collect a fee for stop foreclosure services until after the services have been rendered and you have successfully negotiated an arrangement for the homeowner with the bank.
Strategy #2 - Preforeclosure Purchase
This strategy works best for a homeowner who is in foreclosure that doesn't want to keep the house. However, there is plenty of equity available in the home that the homeowner can sell the house at a discount and still be able to pay off the loan in full.
In many cases, a homeowner in this scenario will go to a real estate agent and have the property listed. However, there are some scenarios in which you can still make a profit. For example, if the house is in poor condition, it is not going to sell for full market value. You can negotiate to purchase the house for significantly less than market value to justify the repairs that will need to be made to the home.
Strategy #3 - Short Sale
This strategy works best in a scenario in which the homeowner doesn't want to keep the house. However, there is more money owed on the balance of the mortgage than the actual market value of the property. This is also known as being "upside down" on the loan.
In this case, you can utilize a strategy known as a short sale to profit on the property. With a short sale, you offer to purchase the house at a price that is less than what the loan is worth and more in line with the actual value of the property currently. Many banks are willing to lose money on the loan because it's cheaper to get rid of the non-performing loan than it is to have to incur the expense of foreclosure.
Strategy #4 - Deed In Lieu Of Foreclosure
This is a strategy that many investors don't know about. A deed in lieu of foreclosure is when the homeowner agrees to give the house back to the bank without the bank having to foreclose on the property. The bank takes ownership of the property and the homeowner moves out of the property.
While there aren't a lot of benefits to the homeowner, it does bring closure to the process and allows the homeowner to be able to move on, instead of allowing the process to continue to drag out through a full foreclosure process.
What you may not realize is that many banks and lending institutions are willing to pay money to investors if they can assist the bank in getting the homeowner out of the property. It is not unheard of for a bank to pay an investor $1000 or more to get a homeowner to sign a deed in lieu of foreclosure and make sure that the property is turned back over to the bank.
Strategy #5 - Buy At Foreclosure Auction
The fifth strategy is to simply purchase the home at the foreclosure auction. This strategy is the one that you have to use if none of the other four strategies work. However, if you have the cash available to take advantage of this strategy, or if you have the investing partners or wholesale buyers that you can flip to, you can still make money off foreclosures at the auction. The key is to make sure you don't get caught up in the action and bid too much on the property.
By understanding how to use all five of these investing strategies, you will be able to close more deals. This is because many deals that you may have had to pass on if you didn't know one of the strategies above, you will now be able to go after and profit off the deal. Knowledge is power in this industry, so make sure you get the knowledge that you need to be successful.