Bargain Hunting: Finding ‘Wholesale’ Property Takes Work

Do you prefer to pay wholesale or retail prices for the things you buy? If you enjoy paying retail prices when you can buy at wholesale, please consult your real estate agent, who will gladly show you hundreds of homes for sale at retail prices.

Those listings are the “red-ribbon deal” houses offered in tiptop condition at full-market-value prices. That’s the best way to sell real estate, but it’s not a great way to buy if you love bargains.

Despite what those real estate gurus on late-night cable TV say about buying distress properties at wholesale prices, the truth is it takes work.

Houses in the process of foreclosure are just one type of bargain distress property. Others include probate sales, IRS tax seizure sales, tax deed sales, VA and FHA repossessions, lender REO (real estate owned) properties, abandoned properties, condemned properties and just plain run-down properties.

It takes work to find, track and buy these properties. But the reward of buying at a wholesale, below-market price makes the effort worthwhile. Here is the procedure:

--To find distress properties, start with a reliable local source of information, such as a legal newspaper or a privately published daily or weekly newsletter. Talk with local real estate attorneys, realty brokers and title insurance people to find the best information sources in your town.

However, don’t be surprised if real estate agents are not much help, because they often do not know about these bargains, since a real estate sales commission is usually not paid. In small counties, you may have to go to the county offices to do your own research.

--Develop a tracking system to keep careful records of the bargains you discover. It often takes many months from the time a notice of default or other document is recorded until a property is actually available for sale.

--Get acquainted with the distressed owner to learn about the property and the distress problem. You may be able to buy from the owner before the public sale, thus avoiding competition from other bargain-hunting buyers.

Most distress properties involve mortgage foreclosures, often due to causes such as divorce, unemployment and illness. Since you didn’t cause the owner’s problem, don’t feel bad about acquiring the property. Someone will benefit. It might as well be you.

Major acquisition opportunities in the foreclosure process:

--Your first chance to buy a foreclosure property is to purchase directly from the owner before the foreclosure sale. Be sure to contact the owner and inspect the house during this phase of the procedure.

A major advantage of buying before the sale is avoiding competition from other buyers and avoidance of any redemption period after the sale. However, if the property has many loans and is mortgaged to the hilt, or if the seller is unreasonable, you may want to avoid this buying opportunity.

--Many professional buyers of distress properties buy only at the foreclosure auction because the sale wipes out junior mortgages and liens. However, unpaid property taxes are not eliminated.

Another advantage is avoidance of dealing with an emotionally distressed seller. But a disadvantage of buying at the foreclosure sale in some states, such as California, is the redemption period. However, few foreclosed owners redeem their properties, so this isn’t as serious a problem as it might seem.

--If there were no bidders at the auction, this is my favorite time to buy distress property because the lender usually wants to get rid of the property, will accept a 10% or lower down payment and offers attractive financing for at least 90% of the bargain sales price.

After the sale, the emotion is gone. If the property needs fix-up work, emphasize this to the lender to obtain a better price or special terms.

The opportunities to acquire distress properties at wholesale prices are virtually unlimited. These properties become available in all areas, from the very best to the very worst neighborhoods. But it takes work to find, track and buy these bargains.