The main reward of investing in pre foreclosures is that you can often obtain the properties at well below market value. Owners of these homes are usually motivated to sell them quickly to avoid foreclosure. They will often be willing to entertain low purchase offers so they can simply get out from under the home’s mortgage and start over.

Buying a pre foreclosure for substantially less than market value gives you the opportunity to sell the property at a large profit. You’ll need to figure in repair costs to determine if an investment is profitable, because most owners in pre foreclosure don’t have the funds to properly maintain their properties. However, the owner should allow you to inspect the home before purchase, so you can make a reasonable estimate of the repair costs before you commit to the investment.

One of the main difficulties of buying pre foreclosures is that it can be difficult to contact the property owner, particularly since you will have a lot of competition. Having a marketing system and a pre-qualifying strategy will help reduce the time spent and increase your odds of spending time on properties that meet your criteria. Since you will have to conduct quite a bit of title and lien research before pursuing a pre foreclosure, you risk wasting that time if you are unable to meet with the property owner to discuss the sale so having them contact you will help increase your odds.

Be prepared if you cannot sell the home quickly, you will want to make sure that you have alternate strategies. You may need to be prepared to incur the costs of renovating and owning the property for an extended time. It’s a good idea to have a backup plan, such as renting the property to tenants, if the home does not sell as quickly as anticipated.

Some of the benefits of a 1031 Exchange that we talked about were:

Tax Savings: A 1031 exchange allows you to exchange your property for another and defer the payment of federal and state capital gains taxes. This basically allows you to reinvest the taxes you owe as an interest-free, no-term loan from the government.

Income: If you exchange from a non-producing or low producing property into an income producing property.

Leverage: The 1031 exchange helps build wealth more rapidly by allowing you to use all of your equity rather than losing a portion through taxes.

Diversification: A 1031 exchange opens doors for diversification. One can achieve geographical diversity or diversification by acquiring a different property type such as exchanging a single family residential unit for a commercial property.

Management Relief: Many investors often start investing through purchasing single family residences. As a result, they accumulate several smaller properties and may find themselves in a management-intensive and time consuming situation. The 1031 exchange provides a solution to this by allowing you to exchange these smaller properties for one larger property.

It was a great show and provided a lot of insight for our listeners on how they may be able to leverage their existing inventory into bigger deals. As we shared, there has never been a better time to get involved in rental real estate.

Tune in next week to www.NewsTalkRadio1160.com Saturday 10-11AM.

Anne Lackey

The first question you should ask yourself is – why do you want to invest? For some it is to replace their income from a job. For others it is for retirement. Some just like to have a project and make a little money.

We have found that when helping other real estate investors, our first goal is to help them figure out the why and then help them determine the what. For example, if you need money today to replace the income you get from a job, then you need to produce income today through Quick Turning a property.

Quick Turning is purchasing a property at a depressed value, adding value to the property and then selling it at a profit. This is a great strategy and requires knowledge of the market to make sure that you are purchasing it correctly and then also some skill in determining how to maximize the return by strategically adding the value to your investment.

If having money for your future retirement is more what you are looking for – a Buy & Hold strategy might work best for you. With this type of investment, you are looking for results in the future, so you want to find an investment that you can rent out for more than the mortgage payment so that you have some cash flow. Over time, you will pay down the mortgage and the cash flow will increase giving you greater income in the future.

Both strategies have merit and typically we recommend that every investor have some of both types to round out their real estate portfolio. Once you determine what type of investment you need, then evaluating a property against your overall strategy will help you determine which property is a good purchase for you.