Making Money in Foreclosed Real Estates

I am a Money Magnet! We are Money Magnets!

In this small world, you probably know someone who's made millions (or maybe even billions) in the real estate industry.  It's not a secret that there's a lot of potential money to be earned in real estate especially in foreclosed properties.  During the Money Summit and Wealth Expo, 3 such individuals shared their knowledge and ideas on how to earn millions in foreclosed properties.  Trace Trajano, real estate guru and best-selling author of "Think Rich Quick", talked about Fast Fortunes in Flipping Properties.  Eden Alemania-Dayrit, one of Trace Trajano's successful students, talked about Getting Rich Through Rent-To-Own Properties.  And last but definitely not least (he's probably the most successful among the 3), Noli Alleje talked about Quick Profits in Foreclosures.  Here's a consolidated report on what I learned from the three speakers on how we, money magnets, can make millions in real estate.

According to Trace Trajano, real estate is good for the following reasons: income, equity, appreciation, and leverage.  

Real estates can provide income either through rentals or from the capital gain you get after selling the property - all this with very little or no work.  Real estates provide equity which is the monetary value of the property itself - all this while your loan is being paid down by your tenants.  Real estates appreciate over time with inflation which means, value-wise the likelihood of your investment going below your purchase price is very slim.  And there's leverage in real estates which allows you to own properties with very little money (as low as only a 10% down payment). 

Eden Dayrit presented the following steps in making money in real estates: FIND, FUND, FIX, SELL, and PROFIT.  

Step 1 - FIND

I guess it would be an understatement to say that location is very important when it comes to real estate investing.  Here are a few tips given by the speakers in finding the right location:
  • Target foreclosed properties as they usually are cheaper.
  • Eden suggested finding properties that are undervalued, preferably 50% lower than their market price.  You can estimate the market price by either getting the zonal value of the property from the BIR, or by comparing it with the prices of nearby or similar properties.  There was a 3rd way presented which was the Income method which I believe was to estimate the market price by estimating your selling price (especially if you're familiar with the area already) and thus computing for potential income but I can't be sure as I didn't fully understand this part.
  • Trace's suggestions were more general in nature and actually refers to marketing techniques.  As part of his extreme marketing strategy, he said that it would be important for sellers to know their target market first and find properties that would suit your target market's needs.
  • One suggestion from Noli Alleje that stuck was looking out for properties in areas where there's rapid development or where known developers, like say Ayala Land, have just started developing.  He said that, for sure, neighboring areas would appreciate in value as well over time.
  • Noli also recommended that you visit the place a lot of times and in different times of the day and week.  Depending on the time, day of the week, or even the weather the surrounding area might present problems that would make the property not sellable.  Therefore it would be wise to go and personally look at it and evaluate it closely.  
  • It would also be good to check the legal status of the property and make sure that no other owners are contending for the same property. 
  • It would be good to buy when the inflation is low.
  • It would be good to check the IN-OUT migration in the area.

Step 2 - FUND

Funding the property involves acquiring the money to pay for the down payment.  Here are a few ways to do this:
  • Use your own money
  • Look for an equity partner.  An equity partner gets an equal share of the profits but also shares the risks equally.
  • Get a passive investor.  A passive investor is someone who lends you the money for a fix interest rate.  Basically it means acquiring a loan either from the bank or from someone you know.

Step 3 - FIX

Fixing the property means renovating it so that its market price will increase.  One of the reasons why Eden looks for properties that are under valued by at least 50% is because of this.  She wants to be able to have enough leeway for unexpected costs like renovations.  Noli Alleje, on the other hand, prefers to just clean the place up and sell it right away.  He said that fixing the place too much can sometimes increase the market value too much that it would no longer be as sellable.  It would be important to note though that Eden and Noli target different markets and therefore have contrasting ideas.  This is why knowing your target market is very important.  

Step 4 - SELL

Once you've cleaned up the property, it's time to sell it!  Here are a few tips from the speakers:

  • Eden suggests offering a competitive price to achieve faster sales and therefore quicker returns in investment.  By a competitive price she specifically meant selling lower than the estimated market value you got in Step 1.  It would be important not to be too greedy when setting this price.
  • Trace suggested that it would be important to have a compelling message to deliver to your target market.  You have to learn to speak your target markets language.  Potential buyers could either be those who wants to be landlords, renovators, end buyers, or tenant buyers.  For example, it might be good to present the property in terms of potential monthly rental cashflows and ROI for the future Landlord while End Buyers would probably be more interested in how much they need to pay every month.
  • Trace also recommended using the proper media on where to publish or deliver your message.  This is dependent on your target market.  Find out where your target market look for ads when they want to buy real estates and advertise there.
  • Trace also suggested asking your Centers of Influence Networking (COIN), real estate agents, lawyers, contractors, architects, and bankers to find potential buyers.  Your COIN consists of influential friends and relatives who can introduce potentials buyers to you.      

 Step 5 - Profit

And finally, after you've sold the property you earn profit!  Yehey!  This can either come in one big lump sum or in monthly cash inflows for you depending on your agreement with the buyer.

In addition, Trace Trajano suggested that you start out with what he calls as Affiliate Real Estate Marketing which is to start by selling another person's property first and just earn commission from the sale.  This way, you don't have to put out any money while you build your buyers' database, learn the market, and learn how to market - which are the essentials in succeeding in this business.

When presented this way, it makes investing in real estate seem so easy but actually it's not.  For one, finding the right foreclosed property is not very easy at all.  Most foreclosed properties from banks, at least the good ones, are most likely taken already.  I believe it is in this area where the speakers failed to impart more of their knowledge.  But certainly, if you have the dedication to succeed and are willing to put in the hard work, you can definitely earn millions in this field.  Good luck money magnets!   

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