Use option to invest in pre-foreclosures?

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  • Hey guys,

    I am pretty new to options and real estate investing in general. I was starting with pre-foreclosure leads and talked to a few homeowners whose houses were going to auction soon. Most of them want to stay instead of selling the house. In this type of scenario, would it be a good idea to give the homeowner some money to cure the default and get an option to buy the house in the future?

    For example, if a house is of ARV 300k, but needs 60k in rehab, with 10k in behind payment, would it be a good idea if I give the homeowner 10k option consideration so he/she can cure the default, and I get an option to buy the house for 200k after 5 years, or in another timeframe when the homeowner would like to sell? The problems I can think of include, what if the homeowner is in default again before my option can purchase the house ( I guess in this scenario I can cure the default again as a party that has an interest in the property but I do not know the details on how this is done and the risks involved), also what if the homeowner gets a judgment against the property or file bankruptcy, would it jeopardize my option, and what if the market drops a lot when the time window in which I can exercise my options comes?

    I’d love to hear your opinions on how to structure deals with pre-foreclosure properties. My market is very competitive, and investors are offering insane prices for properties in pre-foreclosure, sometimes people are offering close to ARV while the property needs 60k plus in rehab, I seriously do not understand how they can make the deal work. I am trying to figure out how I can creatively structure my offer to be competitive instead of bidding insane prices.

    Thanks so much for your help! Any recommendations/suggestions appreciated.


    HI Sophie

    Welcome to CashFlowDepot!

    You need to be really careful with preforeclosures because often the back payments plus penalties that have been added on to the payoff add up to more than the property is worth.

    You might be able to negotiate a short sale but that takes a long time and the short is usually not enough.

    Instead of preforeclosures, target people homeowners who have not received a notice of default yet. People who are not behind on their payments yet or maybe 1 payment missed and they are looking for a fast solution BEFORE they get a foreclosure notice.

    Some of those people just walk away from their house. What’s the common denominator? They rent a UHaul or Ryder truck to move their stuff. So, get some flyers at UHaul offering to pay for their truck rental IF you buy their house. You can get these houses subject-to (with a seller finance wrap) long before anyone else knows it is headed to foreclosure. pre pre foreclosure with no competition.

    Recruit bird dogs to help you find these opportunities too.

    If you see a UHaul at any house, STOP then ask if they want to sell their house.

    Hey Jackie,

    Thanks so much for the advice! The UHaul trick sounds like a good idea! I am not sure whether UHaul allows people to put flyers in their store, but I am going to check it out. I did post a “We buy house cash” ads on craigslist, and it did attract some “bird dogs”, although no homeowner ever contacted me from that ad yet. But the problem about these bird dogs is, most of the leads they sent are not really leads, they were either listed by realtor already, or just some old houses they found on google street view, most times the house just look old but when I skip traced and talked to the owner the owner was not motivated at all. Any suggestions on how to qualify bird dogs?

    Thanks again for your advice!

    See the Special Report MEGA Lead Generator for tips about how to get great leads from bird dogs (and not get the wrong kind of leads)

    The Special reports come with your CashFlowDepot Premium Membership

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