The primary objective of real estate investors is to find motivated sellers from whom to buy homes at discounted prices. But what is a motivated seller? In a nutshell, motivated sellers are people who want or need to sell their home for a host of reasons. Whatever their motivation may be, these sellers are most often willing to agree to a lower offer price or discount in exchange for a quick close.
Here are some scenarios where real estate investors are more likely to encounter motivated sellers:
Foreclosure
A foreclosure occurs when a homeowner is no longer able to make mortgage payments as needed, which allows lenders to recoup the balance of the loan by forcing the sale of the property. When a foreclosure looms large, homeowners will usually seek to offload the property in order to repay the lender and avoid negative hits on their credit history. This is the best time for investors to negotiate and snap up a pre-foreclosure home.
Delinquent Taxes
When homeowners fall behind on taxes, many will list their home and resort to the sale proceeds to repay overdue taxes. Note, however, that once the local authority places a lien on a property, it cannot be sold or refinanced until the taxes are paid and the lien removed. Investors are allowed to purchase property tax liens from municipalities and collect the payment themselves. If the owner cannot pay the lien by the deadline, the investor has the authority to foreclose on the property and assume ownership.
Distressed Property
If a homeowner cannot afford to maintain or repair a property, they will often sell it in its current condition for a discounted price. There are numerous distressed homes available on the market. It is important that investors establish the extent of the renovation far in advance as the repairs may sometimes be too costly.
When determining the maximum price you should consider paying for a property, many real estate investors abide by the 70% rule, which states that the highest price you should pay for the property is 70% of the ARV minus costs of repairs. Imagine the after-repair value (ARV) for your property is $100,000, and it needs $25,000 in repairs, then the most you should pay for it is $45,000.
Relocation
Whether it be due to a sudden job loss, a career change, or to care for ailing relatives, people are constantly on the move. Real estate investors can profit from this opportunity to close great deals. As few people relocating have the means to afford a second mortgage in a different city or part of town, these motivated sellers will put their home on the market and typically favor immediate, all-cash offers.
Are you interested in learning more about real estate investing? RLG would love to help you find a suitable investment strategy for your goals! Call us today to learn more!
