How can I beat other investors to foreclosures if I don’t have any money?
The foreclosure niche is dominated by investors with cash. When you’re a beginner, it’s easy to hate them for it. You can spend hours performing due diligence, arranging your financing, and scraping together a down payment, only to have a cash investor scoop the foreclosure right out from under you. It wastes a lot of time. If it happens often enough, you start to feel like a failure.
The good news is, with a little ingenuity, you can still compete. Occasionally, another investor will rob you of a great foreclosure deal, but you can dramatically increase your chances of fending them off. The key is your story. You need to present yourself to the bank in a way that makes them believe you are a reliable buyer. If you tell the story well enough, you can become even more attractive than a cash buyer. You can make the bank want to sell you their foreclosures.
Consider the following examples:
The Reliable, Income-Earning Employee
People working the 9-5 are the lifeblood of the American lending system. If you’ve worked at the same job for years, pay all of your bills on time, and have some disposable income every month, then you’ll have no problem getting a loan.
So, show it off! On your preapproval letter from the mortgage company, ask them to comment on your outstanding credit, longtime employment, and excess monthly cash flow.
Never mention that you’re an investor. Tell the bank that you’re simply looking for a second home in the area and you want to get a decent deal. Banks typically view investors as sharks, and you need to separate yourself from that.
Paint a picture of yourself as a successful worker that’s ready to enjoy the fruits of his or her labor. Technically, it shouldn’t matter to the bank, but it does. They’ll accept more of your offers on foreclosures if you can tell a different story.
The Wealthy but Frugal Retiree
If you’re near or passed retirement age, you’re in a great position to play the "wealthy but frugal retiree." To play the part effectively, you’ll need to offset your lack of income with a high net worth. For example, do you have lots of money in savings or in the stock market? Have you paid off your house?
Showcase a long-term, frugal lifestyle. Ask your mortgage broker to vaguely mention your formidable assets. You want to tell a story about how you’re both experienced and competent at buying real estate, and you want to make sure you’re getting a good deal. Imagine the 70 year old lady that drives a BMW but shops with coupons every week at the grocery store.
Why are you buying the house? Maybe you want a home closer to family. Or perhaps you have a son or daughter that needs a place to stay for a few years until they get on their feet. You might mention that it’s an investment, but make sure they understand that you’re not a professional investor. You’ll close on more foreclosures that way.
The Foreclosure Expert with Lots of Buying Power
This is my personal favorite. The foreclosure expert is a full-time investor with a huge appetite. You’re upfront about your business; you make money from buying and selling foreclosures. You’ve been through the process a hundred times, so there’s no need for the bank to worry about your closing on time or delaying the contract. You’re a professional.
A secondary benefit is you will win the affections of your realtor. Unless they’re especially dense, every seller’s agent will recognize you as a potential repeat buyer. If they help you get this house, maybe you’ll buy more houses with them, bringing them a long-term and consistent source of income. This perception makes you very, very valuable, and sways many seller’s agents to recommending you above other buyers.
The only downside is you can’t fake this story. Either you have money or you don’t. You also need to know more about foreclosures than the loss mitigation officer. Otherwise, they’ll see right through you and your credibility will plummet. To tell this story effectively, you need to be rich and knowledgeable enough to intimidate both the realtor and the bank. It’s not easy, but when you pull it off, it’s extremely powerful.
So, It Takes Lies to Buy Foreclosures?
No, I’m not recommending you lie. Figuring out your story for buying foreclosures is like putting on your suit and tie when you ask for a raise. You’re simply projecting a more appropriate "you."
Look through your personal characteristics and find the part of yourself that would appeal to a loss mitigation officer. Then, showcase those characteristics when talking to the agent and making your offer.
Not only will you be more interesting, but you’ll separate yourself from thousands of anonymous investors that blindly submit offers. Eventually, you’ll build a brand for yourself that will start attracting foreclosures to you.
For a detailed guide on how to beat other buyers to the best foreclosure deals, download this free report.