How to Work Pre-Foreclosures

Going to the foreclosure auction was the best way to find real estate investing deals from 2009 through 2012…talk about lots of low-hanging fruit!  We were often able to buy a nice three-bedroom, two-bath home in a solid neighborhood for $35 a square foot.  Then in 2013, the cheese moved.  Buying on the steps was no longer the best place to get deals.

Let me explain: In April 2012, there were close to two hundred properties advertised for foreclosure in Bartow County, but at the auction, there were only five investors bidding on them.  It was like shooting fish in a barrel.   One year later – April 2013 – there were less than eighty properties advertised with more than fifty – that’s 50 – investors and hedge funds bidding on that handful of properties.  Suddenly, because of the law of supply and demand, winning bidders found themselves paying $80 to $110 a square foot for a house.  This was a huge year-over-year price increase!

Did this mean that all the great deals had disappeared?  No, it simply meant that to find great deals, investors had to look somewhere else – like buying properties pre-foreclosure. 

What is buying pre-foreclosure?  In Georgia, the foreclosure auction is held on the first Tuesday of each month.  Before a home can be auctioned, a foreclosure ad (aka legal notice) must be run in the county’s “paper of record” where the property is located – and it must run for the four consecutive weeks before the auction.

Here are the steps Kim and I follow once the foreclosure ads run:  First, we take the information in the foreclosure ad and transfer it to our Foreclosure Sheet.  You can see our Foreclosure Sheet, along with the steps we follow, by going to North Georgia REIA’s Facebook page and watching the video.

Next, we mark each property’s location on our foldout map.

The third step is to drive to each house that’s advertised for foreclosure.  Kim drives and makes notes.  I knock on doors, talk to homeowners, and regularly make fun of Kim’s life-threatening, poop-in-your-pants driving skills!

When we get to a house, if there’s a For Sale sign in the yard, I ignore the foreclosure issue and talk to the homeowner like they are the seller and I am the buyer – which is actually the case.  When there’s a sign in the yard, we find that eight out of ten homeowners will invite us in.  Remember, because of the threat of foreclosure, they’re very motivated sellers!

If there’s no For Sale sign in the yard, when I knock on the door, one of three things will happen: The house will be vacant, the owner will be out, or someone will be home.

If the house is vacant, I stick my We Buy Houses card in the door.  I also talk to all the neighbors; they are an incredible source of information about the owners and the property!

If the house is occupied but no one is home, I leave my card in the door, talk to the neighbors and come back later.

If the owner is home, I say, “I heard that you may be selling your house, but I’m confused because I don’t see a For Sale sign in your yard.”  Often the owner will tell me that he’s facing foreclosure.  I then offer to answer any questions about the foreclosure process.  Because so few people know what happens at (and after) the auction, most homeowners greatly appreciate the information we give them. 

Here’s the key: Because I’m face-to-face with the homeowner and many invite me in, I’m able to inspect the inside of the house.  And best of all, I’m able to creatively construct a win-win deal with the owner.  If his house goes to the foreclosure auction, there is no win-win deal in his future.

Again, Kim and I posted a couple of videos on North Georgia REIA’s Facebook page back in July 2015.  This will allow you to see us working real-world pre-foreclosures.  Hope this helps!  (Note, after 14 years, we closed North Georgia REIA in December 2015.)