Foreclosure Investing: A Young Investor Gets Started

Former loan officer Jessica Ko was between jobs and serving on her condo’s board when she learned of an upcoming foreclosure at the complex. She went to the real estate auction to see if she could pick it up at a low price. She had never been to a home auction before.

“Of course I got outbid,” says the diminutive 27-year-old. Still, the condo sold for far less than she had paid for hers in 2008, and she was intrigued. Instead of giving up, she started working with Real Estate Investment Firm, a Seattle-area company specializing in foreclosure investment.

She didn’t jump back into the market right away. Instead, she spent a few months learning about foreclosure real estate auctions through her own research and at meetings the investment firm held. She talked to her parents, who are in the commercial real estate business, and they agreed to loan her the money for her first investments.

Eventually she pounced. She successfully bid at the home auction on a rambler about a mile from her home, in an area that was both convenient and familiar to her.

There was one wrinkle: the former owner was still living there.

“She was a very sweet lady. I felt very bad,” Jessica says.

But when the former owner left without protest, Jessica saw that the lady realized she needed to move on and try to straighten out her financial life.

“It was too much house for her.”

So far, Jessica has found former owners of occupied foreclosures to be cooperative. Sometimes she offers them a cash sum to move out, and since they usually need the money to make a new start, they agree.

She’s heard the horror stories, though.

“Oh my God, some of the things you hear! Like they leave the water on, or pour concrete down the drain. I’m sure they’re out there, but I haven’t encountered anything like that yet, thank God.”

Jessica paid about $366,000 for her first property and spent another $40,000 fixing it up with the help of the investment firm.

She bought a second property at foreclosure sale for $323,501, also with a loan from her parents, while still working on the first. That house didn’t need work, so she put it on the market a week after buying it and it sold right away for $389,950, netting her a tidy profit to help with the first house and giving her confidence.

She put the first house on the market in May 2010 – right after the federal first-time home buyer credit ended and slowed the market dramatically. For months the property languished without an offer, and Jessica started to get nervous. Then in the fall, offers started coming in. She sold the house for $473,000 in October.

Property 1                                  

Purchase Price $366,000

Rehab  Costs

$40,000

Sales  Price

$473,000

Potential  Profit

$67,000

Property 2                              

Purchase Price $323,501

Rehab  Costs

N/A

Sales  Price

$389,950

Potential  Profit

$66,449

Jessica was hooked. Now she is full time foreclosure investor. She just bought her 14th house. She has sold nine properties, has one listed for sale, and plans to sell three others.

One of her purchases, an adult family home, had a good cash flow income, so she’s keeping that as a rental. Though she now has a real estate license, she uses the investment firm’s Realtors to list her properties to avoid potential liability issues.

Perhaps the best part of her new career for Jessica is the milestone she just passed: she has now paid her parents back in full for the loans.

“I feel really good about that.”

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