1. Select the Right Bank
The first step in the process is to select a bank that you will be buying foreclosures from.
Talk to a loan officer, explain your interest in their bank, and ask for a list of foreclosed properties and the bank’s asking prices. Do this with several banks. Unless you have additional information, select the bank with the most foreclosures.
2. View Properties
Next, review the list for the type of property you are interested in(condo, single family residential, apartment, etc.)
Drive to each of the properties that interest you, check location, number of units for sale nearby, and if there is any damage.
Remember, this is investment property; not something you will live in. Look at the property as an investment. If none of the properties appeal to you, go to the next bank’s list of properties. When you select a property proceed to negotiation.
3. Negotiate Price with the Bank
This is the most important step in the foreclosure procurement process. Remember, the bank currently has to pay for insurance, maintenance, taxes, etc. They also have to be concerned about vandalism; all of these factors work in your favor. Make sure the banker knows that you are an investor and will only purchase properties that will provide positive cash flow. Do a quick analysis of what price will provide you with cash flow. Compare that to the bank’s asking price and make sure your first offer is LOW (you can always increase your bid later on in the process). The bank’s asking price is most likely based on the amount they have invested in the property(or even higher). If you do not have much experience in negotiating I suggest that you pick a property that you have no interest in for your first negotiation. Thus, you can try many negotiation techniques to see how the bank responds; you are not concerned with being turned down. This experience will be very helpful in future negotiations.
4. Negotiating the rest of the Deal
There are still things to settle on after a price has been negotiated. Closing costs and interest rates need to be determined. Try to get the lowest interest rate possible (suggest a rate that the bank is charging for owner occupied property). Once you have settled on a fixed rate, try to get a lower rate for the first two or three years of the term. Example: say a 5% rate was agreed on, try to get the bank to agree on 4% for the first two years and then go to 5%. That amounts to 20% less interest for the first two years, money that will flow into your pocket!
Also, negotiate closing costs; start out with zero(you are taking a non-performing asset of of the bank’s books).
5 Important Tips
A. You are an investor, do not fall in love with a property. View this as similar to negotiating the purchase of a car.
B. Remember, you are negotiating as soon as you first step in to the bank!
C. I cannot stress strongly enough going through your first negotiation with a property that you have no interest in. if you are inexperienced. What you learn will be invaluable in future negotiations.