How to Invest in Foreclosures WITHOUT Falling for Common Mistakes

On the latest episode of the Foreclosure Deals Coach Podcast Donny dives into all the mistakes he has made through the years.  Tune in so you can avoid these common mistakes in the foreclosure investing.

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Transcript

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Hi, this is Donnie Corum, your Foreclosure Deals coach. In this episode, we're gonna discuss the mistakes people make when they're buying a pre foreclosure property. Stay tuned. You're gonna love this one. Welcome to the Foreclosure Deals Coach Podcast. The real estate market is shifting. The time is now. The Foreclosure Deals Coach Podcast is your home for the mindset, tactics and tools needed to break through your limiting beliefs and find freedom by investing in foreclosure deals. Don't buy a house, buy a deal. You need to get into this right now. And now your host, the Foreclosure Deals coach, Donnie Corum. Hello, hello, hello and welcome back to the Foreclosure Deals Coach Podcast. I am your host and foreclosure deals coach. Thank you. So I appreciate is the, where we discuss tactics and tools used by successful foreclosure investors. We're talk to find. Figure, fund, fix and flip your first deal. And as I mentioned in this episode, we're really gonna dive into how to buy pre foreclosures without making some of the big mistakes that can really befall investors who are buying homes. Before they go to foreclosure, a lot to cover here in the show. Let's dive right in and get right to it. So outta the gate, as we do every week, we wanna open up the show with a little bit of mindset stuff and why? Why do we wanna do mindset? Listen, how you perceive information is super important. And I have to tell you, over 17, 18 years of flipping deals here in my local market, I have made pretty much. Every mistake you can think of, so you don't have to, okay? I really hope that you'll leverage my experience either by watching the podcast or getting coaching or joining my Facebook group@fdcoachgroup.com so you can avoid making these same mistakes. But the biggest mistake that you can make is overanalyzing this and not taking action. Listen, the thing is, Mistakes happen, stuff goes wrong. In a previous show I talked about how one in seven properties on fix and flip are losing money right now, and I can tell you markets that number can be even higher. The tendency to make mistakes is absolutely humongous. So to get around that, you gotta understand the, do you have to take action to avoid being concerned about making mistakes? So our mindset quote today comes from John Wooden and John says, if you're not making mistakes, Then you're not doing anything. I'm positive that a doer makes mistakes. Are you a doer? Are you on this show here to learn more about real estate investing? Or do you actually want to do your first deal? Listen, I get it. There's a lot of risk when you're first starting out in any investing, whether you're buying a mutual fund, your first stock. You're investing in a business, there's an inherent risk that comes from taking your money and putting it to work for yourself, right? That's the risk of doing it. However, if you're not making some kind of mistake along the way, you're not gonna get any results. So you have to be willing to make mistakes, and you can mitigate some of those mistakes by bringing in professional help. Through foreclosure coaching. So I really wanna help you out with that. But I'm hoping by exposing some of these mistakes, sharing some of the issues that I've seen people make in the past, you can avoid this. So recently I signed a client who was pushing 70 years old, and of course I, you know, I was hesitant, like, is is this the right thing for somebody who's getting up in age and can't necessarily afford to take a risk with their capital? But here's the thing. After talking with her, I realized she had done plenty of homework. She's a real estate agent, so she's got the professional experience required, and she brought her daughter with through as also an attorney, two very, very smart people. It was a pleasure to meet with them and go over my coaching program with them. In the end, we decided this was the right move to get her into the coaching program and help her to start through the first deal. The thing about it is, During the conversation, it came up like everyone else. There's an inherent fear of making a mistake. She was just really worried that she was gonna do a deal, which she's wanted to do for a while, and lose money on it. So the investment into coaching and education. Pays for itself pretty early on. One, because when you get coaching, I am definitely going to make you do a deal, okay? I don't bring anybody into my program who I do not believe I can help to do their first deal. So force you're in coaching. You're going to avoid making a lot of the obvious mistakes that are out there. So we're gonna hop into the potential mistakes that investors make right now. But don't be afraid to do something. Don't be afraid to take action. Listen, doers by design make mistakes. Unfortunately, with real estate investing mistakes can be a little pricey, right? So you wanna avoid making big mistakes in this because they can cost you a lot of money. And I've seen investors who never fully recovered. From their first mistake cuz they lost so big. I'm not telling you not to scare you off, but rather for you to understand that by avoiding these mistakes, you're gonna be in a better spot. You won't have to worry about it as much. And certainly with some guidance, you really don't have to worry about it at all. Cause I've made every mistake you might make several times over. Unfortunately I learned from those. So you don't have to do the same. Let's hop into it. Mistake one that I've seen investors make when they're buying a pre foreclosure. Now let's real quickly frame that up. What is a pre foreclosure? Well, a pre foreclosure is when you're dealing with a distressed seller that is currently in foreclosure and about to lose the property to the foreclosure process. Okay, so in this mode, you are talking directly to the seller, and as a result of that, You have to count on the fact the seller may not be a hundred percent honest with you. Maybe they don't know the entire situation. I've seen a lot of times with divorce situations where the husband knows more about the deal than the wife or vice versa, right? So they may not be trying to delude you, but mistake one that people make in pre foreclosure investing prior to it, going to the auction and being owned by the bank is insufficient research. Listen, you've. Know what's going on with that property. You gotta do an o and e search, which is handled by your title company. To determine what liens are on the property, you obviously need to check out the condition, right? Need to know if there's any outstanding taxes that you might have to pay later on or any other potential issues. Additionally, if you really understand your local real estate market and can do proper deal analysis, that will help you to make some informed decisions. So make sure you don't fail to do your research, do your homework, really check it out, especially in pre foreclosure, because there are certain things that if you work hard enough to hide, you can. And I have seen situations where that's been the case. They hit some stuff from the potential buyer or the investor buyer, and they got bit in the butt on that later on. Okay. Number one is kinda like this, but inadequate due diligence. You really want to do an inspection on a pre foreclosure, on a post foreclosure. Here's the thing. Generally when you're buying a property from a bank, you're buying it as is. Where is, I'm not saying not to do an inspection, I'm just saying it's less valuable. Than the pre foreclosure stage. Why? Because banks don't tend to fix anything. They price the property for what it's gonna go for. However, if you're buying a property before it goes to foreclosure, a lot of times you can negotiate a better purchase price based on known conditions. As a result of that, buying before the foreclosure is far more lucrative. Far more profitable in most cases than buying after the foreclosure, but it requires some effort. You gotta go out there and scout those deals, right? Whereas a foreclosure is listed on the market, you can generally just find them. A pre foreclosure requires a bit more work, but do your due diligence. Know what you're getting into, do your homework. Definitely do an inspection. You can do an inspection on a foreclosed property too, but they're not generally gonna fix anything, so in a pre foreclosure is a better time to do the inspection. Okay. Number three, lack of a solid financing plan. You don't know how many people I've seen go into buying a foreclosed dealer, buying a deal. Uh, an example, there's a big wholesaler. I'm gonna do a whole show on this new Western who takes a very large earnest money deposit. In my market, it's$10,000. I've seen it be more than that in other markets. But because you're buying a pre foreclosure, generally speaking, a lot of times you're gonna need a pretty substantial down payment to tie it up. This is not always the case, but a lot of times you gotta put a lot of money down on the deal to secure it. Why? Because whoever's selling the property wants to make sure that you're financially tied to it and aren't gonna back out somewhere in the process, right? So you really gotta make sure your financing is lined up. With my coaching, I own a company called Traction Capital, and that is our hard and private money lending brokerage that makes sure that your financing is lined up before we get to the point that we're actually evaluating a deal. You don't wanna get under contract on a deal. With a$10,000 earnest money deposit, only to find out later that you can't fund the deal and lose your money, and you better believe that these large scale wholesale outfits are happy to take your earnest money if your financing plan is not properly in place and you can't close on the deal. So in pre foreclosure and in general, you wanna make sure your financing plan is very dialed in before you put money down on any home. Next up is underestimating your repair costs. Boy, this is a common theme here. If you've seen investors in the project who are trying to wing this on a wing and a prayer, and they don't have an actual rehab budget set aside, a lot of first time investors get bit in the butt on this one because they find out that the property requires more work than they actually have available to invest. This is a real jam. Guys, so you want to make sure you've estimated your repaired costs to the best of your ability, and better yet, bring in a contractor that you know and trust to do some of those estimates with you so you know what you're getting into prior to closing on the home. That is just so important in the process to know your rehab costs. Let's move on here. Number five. Is ignoring the auction process. A lot of homes, even the ones that are being wholesale off, are on this auction, so it can be very competitive and fast-paced. Failing to understand the process that you're in is the kiss of death because you can get out bid super fast, which might be a good thing if you shouldn't have bought the property. But what I see is a lot of investors get a little bit. Too motivated, right? They're so eager to do a deal that they end up overpaying for the property, and that will be a bad thing, so don't overpay, which is actually theft. Number six is overpaying for homes because you're in that auction or bidding market, or if it's a private seller, they might be talking to multiple buyers who are getting offers. You cannot afford to overpay. It doesn't matter if. It doesn't matter if you get a bad deal. Because you overpaid for it. If it started out as a great deal and you pay too much, you don't wanna get into that financial discipline of overpaying for the house and up losing money overall, neglecting the title search is a big error. You really need to do your, and I mentioned this earlier, but you gotta pull an O and e. You gotta work with a title company you trust, and prior to closing, make sure you know what you're doing with that title because you don't wanna find a lien on the property that wasn't satisfied during the closing process. So you're willing to understand that. And finally, inadequate understanding of local laws. If you don't get your zoning requirements on a deal, let me tell you, I have been in deals that will tear you up. If you end up buying a property and zone incorrectly, you can't do the remodel. I want sort of a story of an investor who wanted to straight a property because it was built. So bad. It was built so long ago and just needed so much work. The best plan of attack was to knock that bad boy and start over, and as a result, he got a great deal on the purchase of it, but then found out the historical society protected that house from being torn down. Oh man, what a loss. Trying to fix this incredibly complicated remodel. Cost a fortune. He had to get it done and get it sellable cause in such bad shape, but lost a fortune on that deal cause he did not understand the local laws and culture on the property. So make sure this doesn't describe you. Try really hard to avoid making these mistakes. Don't be afraid to make a mistake. I've lost money on only a handful of deals in my career. Some were very painful, some didn't affect me that much at all. But I can tell you that if by taking some actions here on these eight things I've discussed today, you can avoid those pitfalls and avoid losing money on your deal. When you do a deal with me, I'm guaranteeing a profit of$25,000 or more, and if we don't hit that, we'll simply do another deal. Right. So I'm not putting any of my clients in a situation where they can lose money. But if you don't quite make the profit that we guesstimate on the deal of 25,000 or more, then we will simply do another deal to catch you up on that. So my coaching is really a zero risk for people who want to take advantage of that. With that. Let's hop in here and talk about our deal of the week. Now, this is a deal. I've mentioned John on the show a couple of times. He was a coaching client who signed up with me on Wednesday of a certain week, right? By Thursday he had cashed to deploy. So we went and looked at a property Thursday morning, and by Friday he was the proud home homeowner on his first flip. Well, that was a little while ago now, so. We have just gotten the property on the market and you guys have got to check this thing out because it came out gorgeously. Let's take a look at this thing real quick here. I'm gonna pop my screen open so you can see it as well. Here we go. It's on Ironwood, and here comes the screen. Okay. The property is a four bedroom, two bath, located in the Pikes Peak Park area of Colorado Springs, which is a very up and coming area because there was a lot of affordable houses in there. The house came out, gorgeously checked out the interior photos here. Nice floors, beautiful paint job. I use one of my preferred contractors to get this deal done, and I have to say it came out even better than I expected. I'm so proud of him. Obviously what you care about are the numbers, so let's go over the numbers, but real quick, take a gander. New cabinets, new countertops, new carpet, new paint. Came out beautifully. It is now listed at 3 95 shooting straight with you. This is a great deal ahead of what we actually expected to get for it. But because John paid cash for the deal, he's got a little bit more time. He's not racking up interest like a lot of people are on their deals so he can afford to, you know, wait a little bit longer to get it sold. So that's not, that's rare, but it does put'em in a unique position. So let's look at the numbers on this deal. We'll hop into deal check. And in the deal check app. Here we load our purchase worksheet. John picked up the property for 2 95. As I mentioned, my, my ARV was actually closer to three 80, but based on where we're at now and the traffic we're getting, I think 3 85 is now realistic. Right. We spent on the remodel about$40,000, uh, that we built in our cost overrun at 10%. So really we can accurately say that we spent about 40 total. So we don't need the cost overrun, so I'm just gonna adjust that real quick. That's what's great about this app is we can go and make adjustments to the profit projections in real time, so we can track our numbers after the numbers are in here. I took out the fact outta the fact that there's no loan on this deal, and based on the current numbers, uh, that that can't be accurate. Hold on, let's go back in here. Okay. When I pulled the profit over on it, screwed that up. So we need to put the, uh, rehab budget in here, but no cost overrun, right. I'll put a 1% cause I think it requires that, right? We go back in here to the property analysis of profit projection, and John should be walking out of this deal with a pretty sweet profit of$30,000, which ain't bad for knowing the guy for two days before we went under contract on his deal. Obviously he's. Over the moon. Excited about doing his next deal. He's already looking for the next deal. As soon as this one sells, we'll be rolling his funds into the next deal and of the 10 31 Exchange program, he can do this with 30,000. No taxes. Right. Uh, how many investment strategies do you know where you can make a profit and not pay taxes on it? It's super rare, but courtesy of the 10 31 exchange with real estate, he's gonna make 31 grand. They can roll into another property and keep growing his asset base. Tax free using the 10 31 Exchange program. This is an incredible opportunity for investors out there who are sitting, maybe if you got a bunch of cash kinda laying around. John's case, he had a bunch of money in his savings account, didn't know deploy that this is a way to turn money into more money. When you look at the cash on cash return on this, we're talking about a 10 to 12% annualized return on this property, and that's on one deal that when get done in 90 days. So if he can do that three to four times a year, you're looking at a 30 to 40% annualized return. There's not a lot of stable investments out there where you can make 30 to 40% return on your money, right? This is a huge opportunity for someone who gets it. The house came out gorgeously. I'm super proud of him, and you can do this. Two. You just gotta take the first step and be a doer. Avoid making the obvious mistakes that are out there with the mistakes I just mentioned. Get a coach to walk you through the process. Like myself, I guide through everything you need to find. Figure, fund, fix and flip your first foreclosure deal. Hop on a call with me, do the coaching assessment. Let's talk about a foreclosure investing is right for you. And in the short term, subscribe to this channel so you can stay up to date about the tactics and tips that I do every week on how to become a successful foreclosure investor. And then join my Facebook group at fdco group com that's going to allow you to get part of the conversation. I do a live q and a session. Each and every single week, Thursdays at 10:00 AM Mountain Standard time where I will answer your foreclosure investment questions and we can decide together whether you should be looking at getting your first deal and getting started, but be a doer. The market is moving and shaking. You should be as well. This is a great opportunity of a deal that's out there. We find deals like this every single day, and I am certain I can help you to find. Your first deal as well. For now. Once again, please subscribe to the channel. I'd really appreciate it. Like the content. If you'll enjoy what you see, join the Facebook group and become part of the conversation. I would love to help you to do your first deal. With that, this is Donny Corum, your foreclosure deals coach. I wanna thank you guys once again for tuning into this show. I really appreciate it and I wanna remind you yet again, don't buy a house buy. A deal. Thank you for tuning in to the Foreclosure Deals Coach Podcast. If you like what you heard here today, remember new episodes are uploaded weekly. Subscribe wherever you listen to your podcast. Do you want more of the foreclosure deals? Coach, are you ready to learn the mindset tactic? And tools required to be a successful real estate investor. If so, click the link below to schedule a one-on-one coaching Call today with Donny Corum, the Foreclosure Deals Coach to determine if coaching is right for you. And remember, don't buy a house, buy a deal.