In this article, we’ll be looking at the characteristics, pros, and cons of investing in pre foreclosures, as well as the best means of generating pre foreclosure leads for multifamily properties, commercial buildings, and land parcels.
Pre Foreclosure Leads
When it comes to commercial foreclosures, the word “distressed,” can have a loaded meaning. It is used to reference physically exhausted properties, properties with unpaid debt, and unfortunately, can also represent the owner’s state-of-mind.
Because of that, the property debt research portion of pre foreclosure investing can be a bit heavier than investing in a property regularly.
Pre Foreclosure Investing
It is very common among commercial real estate investors to have a “niche” of investment.
An investment niche could mean that an investor focuses on a very specific asset type. It could also mean that they focus on a particular commercial tenant type. Or perhaps an investor only buys properties within Opportunity Zones.
There are a great deal of possible investment niches.
One lucrative investment niche (albeit unfortunate for the owners involved) is that of pre foreclosure properties.
While homeowners negotiate with a lot of sentimentality, commercial property and land owners are generally more accepting of a deal if an investor is willing to help with back payments and make them an offer.
When looking at commercial, multi family, and land pre foreclosures, the characteristics for investing are quite unique, in fact.
Pros and Cons of Pre Foreclosure Investing
From the buyer’s point of view, the pros and cons of pre foreclosure investing are as follows:
1. Lower buying prices.
This one is pretty straightforward. Obviously, when buying a property in distress, there is a very high chance that the investor will get the property at a discounted rate.
This is assuming they’ve done the proper due diligence to assure that none of the liens currently on the property will pass to them, or that, even with those liens, they’d still be getting the property at a favorable price.
2. Very motivated sellers.
Another straightforward pro of pre foreclosure investing is that the owner is looking to move fast, and therefore will be very motivated to sell their asset.
It is very rare that an owner will stumble upon the necessary funds to cover their debt and climb out of pre foreclosure. Combine that with the hurried nature of avoiding foreclosure, and investors have themselves a short, yet very hot window of opportunity.
3. Negotiating power.
Because the owners are so eager to rid of their property before being foreclosed on, and depending on the level of buying competition involved, buyers will have the upper-hand when it comes to negotiating the sale of a property in distress.
Some sellers may have high competition for their asset, and therefore a fighter’s chance, but all in all, are likely going to have to settle in an effort to cover their back payments before foreclosure.
4. Avoiding auction.
By connecting with an owner prior to auction, investors can first avoid actually having to go to auction, while also potentially getting the property at a lower cost by working out a deal directly with the owner.
5. Shorter sales process.
Another positive characteristic of pre foreclosure investing from a buying standpoint is that the negotiation process is going to be very quick.
And while the speed of pre foreclosure investing lends itself to a few cons (which we cover below), the length of the buying process itself is simply less time-consuming, and in that sense, is a pro.
6. Hands-on investments.
➤ PRO for some, CON for others
Pre foreclosures signal potentially great investments for those looking for value-add and/or opportunistic ventures. In that sense, it is a plus.
For those that are looking for a more hands-off approach, however, the risk associated with pre foreclosure properties is likely not worthwhile, and thus, for them, a con.
This will also depend on the type of distress the property is in.
While less likely, sudden financial distress could actually bring a stable investment into pre foreclosure. In most cases, however, the property will be depleted to some degree, or will be in distress because of its associated risk (for example, a new apartment building that was built in an “up-and-coming” area that never caught on, and therefore did not produce the income worthy to sustain mortgage payments).
Either that, or the property will be physically neglected to a degree that requires a great deal of development.
7. Less buying options.
Between the amount of properties in pre foreclosure at any point in time, and the short window of time for which they’re in pre foreclosure, buying options can sometimes be slim.
When looking at commercial pre foreclosure properties strictly from a quantity standpoint, investing is very much a con unless done on a national scale.
8. More competition.
As pre foreclosure opportunities pop-up and disappear at a much more rapid rate than normal, investors are bound to pounce quickly and with a lot of force.
With a dearth of available properties, an eager seller, and hungry investors hitting hard, pre foreclosure investing can bring on fiercer competition, which is mostly a con for all involved.
9. Limited time to research.
The quickness of investing means a shorter sales process, but it also means that investors have less time to research and prep for interactions with a property owner.
In any sense, less time to research will always be a negative thing for investors, even if they are masterful negotiations. It will always lead to less-calculated decisions.
Overall, whether or not an investor seeks pre foreclosure properties will largely depend on how much the process aligns with their comfort zone.
You can look at commercial investors as either sprinters or marathon runners.
The short yet hot window of opportunity can be great for investors with a bit more manpower who like to move quickly on their investments. In other words, it’s great for those that like to sprint.
For slower-paced buyers with less labor and financial leeway, that like to conduct immense amounts of research—the marathon runners—however, the speed involved with buying a pre foreclosure property might simply be a deterrent.
How to Find Pre Foreclosure Leads
After understanding the intricate pros and cons of pre foreclosure investing, it’s also important to know how to generate pre foreclosure leads, to fuel long-term, consistent investment opportunities, and ultimately, consistent revenue.
Find Leads and Contact Owners Directly with Reonomy
Reonomy allows you to search and analyze properties that are currently in pre foreclosure, then get the owner details and contact information of the owners to reach out directly.
You can use Reonomy to analyze the sales and debt history of any property, as well as its building and lot characteristics, tenants, and more, allowing you to build a hyper-granular understanding of owners and build a list of targeted pre foreclosure leads.
Searching for Pre Foreclosure Properties
With Reonomy, you can search for multi family, land, and/or commercial properties by location, asset and sub-asset classes, by whether or not they are in an Opportunity Zone, by owner, sales history, debt history, and by their current debt standings (including pre foreclosure).
All of the above search filters can be combined in any way to find the exact type of pre foreclosure leads you are looking for.
You’ll likely begin your property search with your desired market. You can search geographically by state, city, MSA, county, zip code, neighborhood or street name. You can also search for an exact address.
From there, you can choose from a multitude of asset classes and sub-classes.
And once you’ve chosen a location and asset type, you can begin adding filters for the size of the building and lot, whether or not the property is in an Opportunity Zone, for the most recent sale date and price, and for most recent mortgage lender.
You can also search for a specific owner name or LLC.
If you’d prefer to bypass any or all of these specifications, you can go straight to the Debt tab of the Reonomy search platform and add filters to find pre foreclosure leads.
You can search for properties with a specific auction date, and for properties in a specific pre foreclosure category. Add filters for properties in “Final Judgement of Foreclosure,” “Lis Pendens,” or “Notice of Defaults.”
Analyzing Pre Foreclosure Properties
Regardless of your search path, when analyzing an individual property, you can always go to the Debt tab to see many present and past mortgage information points, including whether or not the property is currently in pre foreclosure.
Within that tab, you’ll be able to see the current pre foreclosure status of the property, pre foreclosure category of pre foreclosure, document type, recording date, judgement amount, the plaintiff, auction date and location, and the trustee.
You’ll also be able to see the current and past mortgages on the property, including terms, the lender, and more.
Accessing Owner Contact Information
In finding a favorable pre foreclosure property, you can move to the Ownership tab in your analysis to see the current owner along with their contact information.
You can use this information to contact the owner of the property directly and begin an off-market negotiation.
Pre Foreclosure Listings
You can also turn to pre foreclosure listings when searching for an investment. For the most part, however, pre foreclosure listings websites are for homes and other residential properties.
Still, you may be able to use these platforms to identify multi family and other valuable pre foreclosure investments.
Sites like foreclosure.com, preforeclosure.com, realtytrac.com have a focus on pre foreclosure listings across the country, while other general listing sites like Zillow and MLS.com also include pre foreclosure listings along with everything else they offer.
Contact a Broker
Sites like foreclosure.com also make it fairly easy to get into contact with a broker, even if you do not have an individual property in your sights.
They allow you to find local brokers in your area to connect with to begin searching for your next pre foreclosure investment.
Perhaps you don’t have the time to allows remain on-top of current pre foreclosure listings and would like a helping hand to come to you with new deals. In that case, contacting a broker could be helpful.
Buy Pre Foreclosure Leads
By using platforms like REDX, you can also buy pre foreclosure leads online.
REDX provides you with lists of prospects, including homeowners and owner contact information, while also letting you sift through homes based on whether or not they are distressed.
Regardless of the market your searching within, however, when looking for multi family, land, and commercial pre foreclosure leads, Reonomy makes it easy to jump in and search any market in real-time, then quickly get property owner contact information, so you can begin reaching out directly.