When Buying Preforeclosures, Second Mortgages Can be Your Success Tools
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When it comes to the preforeclosure market, one of the best properties that you can invest in is the one with a first mortgage that can be paid in full with ease and a smaller second mortgage that you can purchase at a discounted price. Let’s say that you have a house that is worth $125,000, for the sake of example. If that home has a first mortgage of $90,000 and a second mortgage of $35,000, you can go in and snag that second mortgage for much less and turn a quick profit if you know what you’re getting into.
The first thing that you do is contact the lien holder or bank to offer a lower price on the second mortgage, allowing you to make your profits right there. Say that you get the second mortgage (a $35,000 loan) for only $5,000. That means that at the end of the day, you’ll be making $30,000 profit when the owner sells, refinances, or modifies their loan. When the deal closes, the home will sell for full price so that everyone gets their money, including you. It’s a win-win for everyone, because the owner won’t have to face foreclosure, the bank won’t have the property and will get their money, and you’re making a cool $30,000 just for buying someone else’s problem.
When you sell this type of property, any lender can do the deal since you can actually show it being paid in full because it is below its actual value. You don’t need to worry about knowing someone who knows someone or other ‘tricks’ of the real estate and mortgage world. You just let the house sell or let the owner refinance and collect your cash. These properties are easy to find, no matter where in the world you live, so you’ll have plenty of deals to choose from when you get started in this type of real estate investing.
When you get involved in preforeclosures like this, you need to be aware of the two types of sellers or owners so that you don’t get involved with the wrong one. The majority of them are good people who fell into bad circumstances. These are the people that you’ll want to work with. However, there are also people out there who have bought homes under false pretenses or committed outright mortgage fraud who are trying to get rid of their problems. Watch out for these people. You can just stay out of the mess if you unknowingly get involved with someone who is on the bad side of the foreclosure game.
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