How To Buy St Louis Foreclosures; Advice From A 2,000+ Home Investor

Whether you are looking for a deal on a St. Louis home to live in, or an investor looking to buy St Louis rental property or St Louis homes to flip, foreclosures, REO's (bank-owned real estate) and short-sales offer what are potentially great opportunities. Unfortunately, as you have most likely discovered, you are not the only person in St Louis looking for bargain real estate!  The competition for St Louis foreclosures and bargain real estate is tough and, as the inventory of St Louis foreclosures and REO's declines, getting tougher.  So, what steps can you take assure your success when trying to buy St Louis foreclosures or other St Louis bargain real estate while, at the same time, protecting yourself from the many land-mines that exist in that market?  Below are some tips from Dennis Norman, one of the Broker-Officers and a partner at MORE, REALTORS, who, since entering the real estate business at the age of 18, has bought and sold over 2,000 St Louis homes, including hundreds of foreclosures.  Dennis has "learned from the trenches" and enjoying helping others use his experience and knowledge to help them succeed today in real estate.

Tips "From The Trenches" On Buying Foreclosures:

    1. Be prepared.  Good deals don't last long, so when one does present itself you want to be in a position to act quickly and make sure your offer, as well as you as a buyer, are perceived as strong as possible by the seller. Therefore, you want to make sure you:
  • Establish a relationship with a experienced REALTOR to represent you as a Buyers Agent on the transaction.  Preferably someone that has experience in the area of buying property for investment, doing rehab, etc.  Their experience will help them help you stay out of trouble in the transaction or at least avoid most of it, hopefully. You want to get them "on board" right from the beginning so they can help educate you on the market, help you with financing etc.  This is an area we are strong in, we have St Louis housing market data available that is real-time and investors love!  In addition, we publish weekly real estate market update reports for all areas of St Louis.  
  • Know specifically what you are you looking to buy in terms of neighborhood, house size and amenities, price range, etc, so you can spot the opportunity as soon as it hits the market and act fast.  One of the best ways to make sure you don't miss out is to let us set you up an automated search based upon your criteria so that you are notified immediately when a hot deal hits the market.
  • Are available to look at the property on short notice if at all possible...again, the deals don't last so you want to move quick.
  • Have your cash or financing in order. If you are going to be paying cash when you buy, then have current statements and proof you have the money on hand at all times and if you are getting financing make sure you have a current pre-approval letter as well as proof of funds needed for downpayment available at all times.  If you are obtaining financing, the best thing to do is to have a firm commitment from your lender on the financing in hand, subject only to an appraisal as that will allow you to consider writing a contract not contingent upon financing and only contingent upon an appraisal which will be seen as more solid by sellers.
  • If you are planning on buying in the name of an LLC, Corporation or other entity, have a copy (in PDF form) of all of your entity documents (including a certificate of good standing from the Secretary of State) available.
  • Go in Fast and Strong.  If it's a deal, the buyers will be swarming so you want to move fast and be aggressive in your offer.  Since today you often only get one shot at buying the foreclosure, meaning that there are typically multiple offers, often in excess of list price if the property was priced really right, you may not get a chance to better your offer or address a counter, so my suggestion is to give it your best shot the first time.  I am NOT advocating to over pay, or go above what your numbers work out to, but I am saying going in the maximum price that your numbers support and you will still consider it a deal worth doing.  Also, there are many times when the "best" deal for the seller, or at least the one he or she accepts, is not always the highest price since seller's are looking for a solid buyer that can close, you should do the following with your offer to show your strength:
    • Make your contract as contingent-free, or as "clean", as possible.  Meaning, if you are paying cash, or have guaranteed financing in place and feel comfortable without a financing contingency and/or are willing to go forward without a building inspection (only do this if you are experienced and know what you are doing) consider leaving some or all of these contingencies out of the contract to make your offer stronger to the seller.  As I mentioned above about the financing, even without a financing contingency you may want to consider an appraisal contingency however.  There are some contingencies built into the board contracts our firm uses (St Louis Association of REALTORS forms, many of which are also approved by the Bar Association of St Louis county) that are important such as title and survey issues that you don't want to do without.  This is one of the risks of trying to go it alone without a season real estate professional represent you and your interests in the transaction.
    • If you do make the contract contingent upon financing, be VERY specific as to the terms of the financing you will accept and make sure those terms are not better than the pre-approval you are providing.  For example, if your pre-approval shows an interest rate of 5%, don't make your contract contingent upon getting a loan at 4%...it negates the benefit of your pre-approval.
    • If you are going to make your contract contingent upon inspections, which I would highly recommend if you are not experienced or have any doubts or concerns about the property, then I would suggest that you remove the option to renegotiate the contract terms from the options under the building inspection contingency resolution and leave just the right for you to walk away or proceed (this again assumes using the St Louis Association of Realtors contract forms). This will give the seller confidence in your offer and not him the seller think you have perhaps offered a higher price than you are comfortable with and that you are banking on beating them down later after getting the inspection.
    • Put up a significant amount of earnest money.  Earnest money shows you are serious and have the money to do the deal, yet many investors show minimal amounts of earnest money which I think is a mistake.  If your contract is prepared properly, there is no real risk of loss of your earnest money if your offer is not accepted as the check is typically held by your buyers agent until the contract gets accepted (you want to be sure a copy of the check is provided with your offer though to show your strength and that you are serious).  Then, if your offer is accepted, you will have listed in your offer (again, assuming a Realtor form like I mentioned before) the name of the escrow agent that is to hold the earnest money (generally the title company you plan to close at).  If you are using a title company and receive closing protection coverage, your earnest money is insured by the title company's underwriter.  How much earnest money is enough?  It depends on the terms of your sale and the sale price.  If you are making a cash offer not contingent upon financing I would suggest around 10% of the purchase price.  If you are obtaining financing, then somewhere between 25% - 50% of the downpayment you will need (not to exceed about 10% of the offer).
    • Use St Louis Association of REALTORS contract forms.  I've referenced them many times above because they are good, have been reviewed thoroughly by active members of the REALTOR community and, in the case of many of the forms, have also been reviewed and approved by the Bar Association of St Louis County.    
  • Don't give up or be impatient!  Even if you do the above, you are going to find you may very well get beat out on deals or have your offer rejected.  Do not give up though...this is not easy, but the reward for your persistence can be good.  Getting beat out on a couple of deals can cause you to question your business model or your numbers, or even tempt you to stray from your model and stretch.  While I would absolutely encourage you to review your model, double check your numbers and make sure you are basing your decisions on good, accurate and timely market data, I would NOT get caught "chasing numbers" and "stretching".  It will likely cost you...be patient and thorough.  
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    Dennis Norman, St. Louis REALTORWhile this is not an exhaustive list, it is a good blueprint to start with and build upon.  If you have questions, or would like to discuss how to get started buying foreclosures or, perhaps you are already buying foreclosures but not so sure you are doing it in the best way, please contact me, I'll be happy to help.

    Dennis Norman
    Direct: 314.332.1012
    Email: Dennis@Mo-Re.com
    My bio and complete contact info can be found here.