It seems like it’s not important to know your exit strategy (what you’re going to do with your pre-foreclosure home after your offer is accepted) when you first sit down to share your pre-foreclosure information with the seller and even before they sign the Purchase Contract. But it is not like that.

Important Pre-Foreclosure Information After Acceptance

What you are going to do with that property before foreclosure is just as important now as it will be when the bank accepts the offer.

– If you buy the house, where will you get the money?

– If you borrow the money, how much cheaper do I have to get the house to repay the interest?

– Will you lease/rent or sell the property after rehabilitation?

– Are you going to do the repairs?

– If you don’t want to do the repairs, who will?

– Do you have a list of people who would be interested in buying the house if you are not?

– Where would you find people who would buy the house if you don’t?

These are all important questions and should be on your mind the entire time you work on the pre-foreclosure track. Once the offer is accepted, you generally have 30 days to close the deal. So time is of the essence.

If you have most of these questions answered and the pieces in place, it’s much easier.

We’ll take them one at a time.

1. Yes, you will buy the house before foreclosure and do the repairs yourself. And you don’t have any money, but you have experience in rehab.

Buying homes before foreclosure is a great way to build your property portfolio and increase your net worth. You can get the money from a private lender, a hard money lender, or a mortgage company.

Using a Private Lender When Purchasing a Pre-Foreclosure Short Sale

A private lender could be someone in your family or circle of friends who you know has had some rehab, is interested in increasing their own income, and believes in you. They may lend you the money at 8% because they currently only get 4.5% in a money market account. Great offer!

It will simply show them that their money will be safe through a first mortgage on the property and that you will buy it for less than 70% of the after repair value (ARV) or after value is set and fair market value for the neighborhood.

They can lend you the cash directly or from your self-directed IRA (more on that later) where the money is not taxed.

Using a Hard Money Lender When Buying a Pre-Foreclosure

A hard money lender charges a higher interest rate and usually points up front. (Each point is 1% (percent) of the loan amount). They may or may not look at your credit, but they usually don’t want this to be their first business. They want you to have experience in rehab and property buying, making them feel safer when they don’t know you. They don’t normally ask for a credit report. They are lending because there is equity in the property and will foreclose on the property if you do not make your payments.

Another way to build trust with your lender is to provide even more information prior to foreclosure. Sign a deed in advance with your private lender returning the property rights to your lender if you default. The deed may be held in an attorney’s or Title Company’s escrow account, if necessary.

Giving your lender options shows that you want to make sure your investment is safe is a great way to keep them wanting to lend you more money!