5 Secrets to Profiting Big from Distressed Properties

By Heather Taylor0 Comments

With the right system in place, real estate investors can acquire properties for cheaper than they thought possible, save money on rehabs and turn it into a lucrative part-time venture, according to a 20-plus-year real estate veteran.

Andy Heller, who has bought and sold more than 100 investment properties with his partner, Scott Frank, shared his secrets to spending as little as possible and make maximum profits on foreclosures during the Equity University Networking Conference bonus day Thursday, September 27.

Heller stressed that the current market conditions are right to get into this type of investment, but that real estate has been a profit-maker in all types of economies. In their two- to five-hour a week part-time investing “hobby,” the two investors have made more money in some years than they did working their full-time jobs.

Self-directed investors are in a better position than many to take advantage of the market too. Many investors in groups Heller teaches don’t have the capital to get started, but those with self-directed IRAs have the advantage of having at least enough for a down payment in their IRAs, as well as the ability to partner with other self-directed investors, he said.

“You have options that most people don’t have,” Heller said to the bonus day attendees.

The opportunity is there, Heller added. It’s estimated that there are 1.6 million properties right now on the brink of foreclosure. Not only can they be viable investments, but the owners of those properties are coming on the scene as renters to fill investors’ properties.

Here are five ways that Heller capitalizes on the housing market to be a successful real estate investor:

Aim for pre-foreclosures. Many investors buy foreclosure properties directly from the homeowner that’s under water, but Heller has a different approach. Call the bank a couple days after a sheriff sale and inquire about the specific property before the bank has a chance to sign it over to an REO (real estate-owned) agent. Not only do you avoid the disheartening task of meeting with a family in foreclosure, but you also can generally get the property for 10-20 percent less than if you waited until it was in the MLS listings, Heller said.

Find and “friend” the right people at the bank. In the days after a sheriff sale, when you call a bank searching for the right representative, be sure to keep your inquiry simple. Heller recommended using the phrase, “Who in this bank is in charge of foreclosures?” It might take two to three calls before you’re connected with the right person, he added.

This tactic generally doesn’t work with national financial institutions, Heller said, adding you’ll have a better outcome contacting local or regional banks.

Once you get through the first transaction and establish credibility, you become a known entity, Heller said. Further get on their radar by introducing yourself and tell them what you do. Become their friend. Become somebody they want to work with. They’ll be more likely to think of you and call you next time they receive a pre-foreclosure property.

“I would estimate that 75 percent of the properties I buy are from sellers who previously sold me a property,” Heller said, adding he has a short list of potential sellers – five or so – from which he gets most of his investment properties.

Consider purchase options. Heller referenced a recent study that showed that 84 percent of renters said they wanted to become homeowners. Keeping that in mind, he gives many of his renters a product they want: lease agreements with options that would allow them to eventually purchase the house.

Heller said he has many tenants who have been living in his properties under this agreement for more than 10 years, but they continue to pay their rent without any problem.

Some states have enacted strict legislation to govern these purchase option agreements, but in any state, as long as you remain ethical, fair and honest, the deals can be win-win situations for everyone involved, Heller said.

Offer an improvement allowance. Heller has squeezed a lot of property upgrades out of relatively small sums of money by offering tenants something called an improvement allowance. While Heller makes necessary upgrades on lease homes, such as a new roof, fresh paint or carpeting, he sets aside about $4,000-5,000 for the tenant to choose other upgrades for the property. The money is to go directly to the contractor for the work performed. But many tenants are “Handy Andys,” as Heller called them, and choose to do the work themselves, bypassing the need to pay a contractor for labor costs. The money then goes only into material costs.

“I get $15,000 worth of rehab for $4,000 of my money. This has saved me so much money,” Heller said. He estimated it has saved him more than $500,000 throughout his career.

Short on funding? No problem. If you can’t quite scrape enough together for that first investment, how do you find private money? “It has never been easier than it is today (to find private funding),” Heller said, adding the networking conference and other networking platforms, including Facebook, LinkedIn, REIA chapters, and even the courthouse steps, provide plenty of sources for private funding.

“No matter what you read in the paper or hear on the radio, no mater how difficult the economy continues to get, this is a wealthy country,” he said, adding, “It will always be a wealthy country. And what you have to remind yourself is that people with wealth have never had fewer (investment) options than they do now.”

Think about the math when you’re trying to sell the investment to an acquaintance who might be receiving .001 percent interest on his or her savings and is nervous about investing in the stock market, Heller said. Investors can get $100,000 property for $70,000 “any day of the week,” Heller said. Conservatively figuring $1,000 per month is being collected for rent and $2,000 per year goes to toward taxes and insurance, that’s a gross of $10,000 per year, or 15 percent of the $70,000 investment. Not figured into that is the fact that the property has a potential sale price of $100,000.

“Real estate is sexy, and it will be for the next five to six years,” he said. “It’s easy to sell to private investors.”

For details on purchasing the full recording of Heller’s half-day workshop and the rest of the recordings from the 40-plus sessions at the Networking Conference, call KT Hartman at 888-382-4727 x393 or email k.hartman@trustetc.com.