Locating distressed properties and motivated sellers are essential marketing tactics for buying investment properties at a discount. Of course, this is also the trickiest part of the job. In addition to finding distressed properties, it is essential to approach the homeowner correctly.
Unfortunately, many inexperienced real estate investors approach the owner incorrectly and leave them feeling as if the investor has learned private information — such as a divorce or hoarding situation — and are using it to become a predator.
It is common for homeowners to view their financial difficulty as a temporary situation. Many feel they can turn it around before foreclosure and some feel a sense of denial about what has happened. Homeowners can also feel emotionally attached to their houses.
Many strategies can be useful for marketing to distressed houses and motivated homeowners, including postcards, handwritten notes, and a phone call. A professional investor should approach all of these techniques with compassion and understanding.
The following are the 12 most common types of distressed properties and motivated sellers you can begin to locate as well as tips for contacting them.
People who are recently divorced comprise a significant component of distressed property owners and motivated sellers. Most people who fall behind on their mortgage do so due to a challenging life event. Many people who have recently gone through a divorce are struggling to afford their home and need to sell quickly.
Estimates indicate that in over 60% of divorce cases, the couple will sell their home as part of the divorce settlement, making them excellent candidates for real estate investors.
Legal professionals often offer the best leads on recently divorced homeowners. Divorce and real estate lawyers, for example, may refer clients if it is in their best interest to sell. Sending marketing material to these professionals and letting them know how quickly an investor can close on the transaction can help everyone solve their problems.
The couple can move one with their lives more quickly, the attorneys can settle for their clients in a timely fashion, and you as the investor can work on another property. Real estate agents may also know when a couple has divorced and there is real estate involved.
Out-Of-State Property Owner
Many out-of-state owners have relocated for a new job or other responsibilities, leaving their home vacant. Some may keep the property as a rental to wait for home values to rise while others have not found time to sell the house.
These homeowners may be paying two mortgages and the upkeep of two homes. They may also have problems with tenants paying rent or damaging the house. Dealing with tenant issues at a distance can leave a homeowner feeling exhausted with the prospect of continuing to hold the title.
Finding out-of-state owners can be challenging. A free but time-consuming option is reviewing property records from your county to check if owners live out of the state. You can also request an electronic spreadsheet with the data, but there will be a fee.
Some companies that will provide out-of-state owner lists with either pricing per lead or via subscription include ListSource and Realeflow. Business.com has published a list broker review that you will find helpful for several of these lead types if investing in lists becomes a part of your marketing budget.
When a homeowner falls far behind on their property taxes, either with their city or county, or their income taxes with their state or the IRS, their property will likely incur the encumbrance of a tax lien. The county, city, state, or federal government may then sell the lien at a tax auction.
The homeowner must pay penalties and interest to reinstate their claim on the home. As an investor, you can buy the house directly from the distressed homeowner before it goes to a real estate tax auction. You can also purchase these homes during the public sale and still get a good deal.
Delinquent tax lists are public record. Most county websites allow you to search for this information with no charge, but paid services can offer the same information in a more straightforward package. To find delinquent taxpayers in your area, contact your county or city Treasurer.
Merely running a Google search for the term, “tax lien lists” with your county of interest will likely provide you with several links directly to sources that offer lists specific to that county. Just make sure you research the list broker in advance to verify their reviews or Better Business Bureau status. Some brokers may sell outdated information.
Municipal Code Violations
Owners of distressed properties and motivated sellers often own homes that are subject to code violations, and they may not be able to afford repairs or home maintenance. The source of these code violations can range from fire or water to roof and foundation damage and beyond.
Infractions may be relatively minor like trash in the yard or severe enough to result in a building condemnation. The upside to buying a home with violations is the issue with the house is known and documented for negotiation.
One possible solution for finding local code violators is requesting information from the city or county office, as some localities provide a list upon request. The Health Department or Building Department are most likely to maintain a list of violations. The REIClub.com offers advice for finding code violation and condemned property deals.
Military members and families who have been deployed or are regularly relocating need to find something to do with their home quickly. Most end up paying rent and a mortgage at the same time while trying to handle a home sale or renting out their property from a different state or country.
As an investor, you can serve these niches by searching for properties around military bases and military towns. From there, you can employ strategies like checking property records for out-of-state owners and looking for foreclosure notices and divorce notices in the newspaper. Another fantastic plan is to search for properties at MilitaryByOwner.com.
Homeowners who have filed for bankruptcy are likely very motivated to sell their house. These owners are facing financial difficulties and may no longer be able to afford their home, especially with their current debt load.
There are several strategies for finding bankruptcy leads. One solution is Pacer, which handles federal court cases like bankruptcy. By sorting through bankruptcy cases, you can do name searches to determine if the owner is in bankruptcy.
Owners cannot sell their home while they are in bankruptcy, but they can do so when they lose bankruptcy protection. Homeowners may lose protection if they fail to file the necessary paperwork, get dismissed for failing to make trustee payments, or if they present a Motion for Relief from Stay. In these cases, a real estate investor can be their last resort as they may be losing their home.
Real estate and other assets belonging to a deceased person usually go through the state’s probate process before re-titling to an heir. Almost 70% of all homes in probate have no debt attached which makes them ideal for flippers who can close quickly.
You can locate probate listings in your area by checking the legal sections of local newspapers. Probate notices will list a probate lawyer or trustee and contact information. Because the trustee is typically a relative of the deceased person, a thoughtful letter is the best approach. If there is no heir to the property, it will go to probate court to be sold, in which case you can still get a terrific deal.
Along with looking for probate notices, go through obituaries to check if the deceased person owned real estate in the area. Private companies like US Probate Leads also sell lists of information regarding probate property.
30-60-90 Days Late aka Pre-Foreclosure
Homeowners who fall behind on their mortgage will eventually receive a foreclosure notice from their lender. These homeowners are usually very motivated to sell but must do so quickly to save their credit and avoid foreclosure. More details about what happens during foreclosure are available here.
Foreclosure notices are available in your local newspaper’s legal section. If you locate a home that is already vacant but has not gone through foreclosure yet, you can try contacting neighbors to see if they have a new address for the homeowner.
Another option is contacting a skip tracing company to locate the owner. For paid resources, try RealtyTrac, which can give you access to marketing lists and pre-foreclosure homes. Most cities and states even allow you to search for homes scheduled for a sheriff’s sale. If the foreclosure process is not yet final, you may have time to make a final offer to the homeowner.
Expired MLS Listings
Homeowners often become motivated to sell when their home has been on the MLS for at least 90 days, or their listing has expired. To find expired MLS listings, you will need the help of a real estate agent. While the agent may require some compensation, sometimes a promise to list homes you acquire through the agent can be enough for help.
This strategy usually involves submitting purchase offers at a substantial discount to the list price. This approach can pay off very well, especially if these were distressed properties and motivated sellers before listing their house on the MLS in the first place.
A fire can be devastating, and many homeowners lack the coverage they need to pay for repairs. Even with the substantial damage, it can still be possible to rehab fire damaged homes for a profit as long as you factor in more rehab money.
When considering fire damaged properties, you should also remember that pre-1978 dwellings often have asbestos, lead paint, and lead pipe fittings. Abatement can be quite expensive with these older homes.
The city or county will condemn most fire-damaged properties, which is the only way to get an actual list. The list of condemned properties in a town may be in many states of disrepair for any number of reasons. You can contact your local Code Enforcement Department or the Property Assessor to get a list of condemned and blighted properties.
Trovit has a function for searching fire-damaged houses around the country as well. It may be useful as well to add a search on your local news station’s website for “fire” every couple of days to see if anything comes up. A quick letter to the owner of the property could set you up in a position where you may purchase the house after the insurance claims process is complete, if applicable.
Hoarding is a severe psychological condition that causes people to accumulate belongings — and trash — to the point of making a home unsafe and uninhabitable. Many hoarders, once discovered, face massive code violations and eviction from their city. Despite the poor condition of these houses, the homeowner may become motivated to sell if they face losing everything, including the home.
In these situations, compassion is critical. If the hoarder still resides in the house, assisting with relocation and giving the owner time to gather some belongings can help. In many cases, however, hoarder homes are owned by heirs who are left feeling overwhelmed by a massive amount of belongings, trash, and damage.
Stepping in with a discounted offer for the property as-is with no cleanup necessary can be enough to secure the sale.
I would approach marketing for these types of distressed properties and motivated sellers by reaching out to the people who may provide services to them. First, you can run a local search for medical professionals responsible for treating the disorder and let them know how you can help.
A hoarder or family member may also reach out to a removal company like 1-800-GOT-JUNK? You could introduce yourself to the local branch of a junk removal company and make them aware of the services you provide.
The “Ugly” House
You know the one down the street. It is the neighborhood eyesore with an unkempt lawn, boarded up windows, the garbage is never placed out for collection, and it just looks terrible. Though it may not be facing a code violation yet, it is unquestionably negatively affecting the neighbors home values. As most people do not choose to live in a house that is falling apart, there may be other factors at work.
If the owner lives in the house, there is the potential for financial distress where an investor can help by providing cash and helping them to relocate. Another common reason for the ugly house is that the owner does not live anywhere near the property so are unaware of the condition.
The best way to find this type of lead is to get out there and start Driving For Dollars. As the name suggests, driving for dollars is where you drive around and take down the information on ugly houses, including the address and some pictures.
After you have compiled enough leads, locate the owner through property records and reach out to them by mail. Including a picture or two in your letter will help a lot when the investor lives far away. It is possible the owner has not seen the house in years so a photo could provide the necessary wake-up call to get them talking with you.
However, you decide to locate leads on distressed properties and motivated sellers, the most successful real estate investors in the country will tell you that maintaining a reliable marketing plan is crucial to sustaining an active flow of deals. Develop a daily or weekly plan and stick to it. Consistency in your marketing efforts will ensure that you will always have another project in the pipeline.
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