Real Estate Articles

Bankruptcy Investing: Investing In Bankruptcies Around the Upstate | By: Caryn McKinney & Mark Klee

Investing in Bankruptcies

 

Six Myths About Investing in Bankruptcies in Upstate South Carolina

By: Caryn Mckinney & Mark Klee, Real Estate Investors & National Trainers

When most people hear the word “bankruptcy,” the first reactions are intimidation and avoidance. The fact that it’s a legal process involving the Federal government pretty much explains both reactions.

From our informal surveys of many investor groups across the country (including Greenville, SC) most real estate investors react precisely the same way … largely due to a lack of education and experience. However, there are so many opportunities for real estate investors in the bankruptcy niche, that my partner, Mark Klee, and I have made it our personal specialty to remove the fear commonly associated with bankruptcies. There are plenty of bankrupt properties for sale right in your market area. In the Upstate, Greenville, Anderson, Clemson and the suronding areas. We live in Atlanta, just a short distance away, and we’re coverd up with bankruptices here.

Let’s address the most common myths and misconceptions:

Myth #1: Bankruptcies are too legally complicated for the average real estate investor

Truth: That’s ridiculous. Do you need to be familiar with bankruptcy terminology and the general process of how a bankruptcy proceeds? Yes. Do you need to understand the differences between a Chapter 7 and a Chapter 13? Of course. Do you need to know the responsibilities and perspective of the Trustee? You bet. But you can easily learn all of these details and more by simply finding the right materials/seminar and being open to grasping a new pool of information.

Myth #2: You can’t buy a house in a bankruptcy

Truth: Hogwash! Sure you can. It requires a few more steps than buying a house that’s not in a bankruptcy, but it’s more than worth your effort. Indeed, it’s really a pretty simple process to get educated enough about the bankruptcy process and terminology so that you can speak intelligently with sellers and Trustees. And the paperwork required to purchase a home in a Chapter 7 or a Chapter 13 is also very basic. The magic piece of paper you need from the Trustee assigned to a Chapter 7 case is called a “Notice of Abandonment.” If it’s a Chapter 13 case, you need to file a “Motion for the Sale of Real Estate.” Want to find a good rental in the Greenville area? Check out bankrupties.

Myth #3: Only attorneys can deal with the Bankruptcy Court or a Bankruptcy Trustee

Truth: No way! The Court system is designed for “the people” … it’s just where many attorneys earn their living. If you’re filing for bankruptcy, we certainly recommend that you do so through an attorney, but if you’re just trying to purchase a home involved in bankruptcy, you can do it on your own. Further, the Trustee is an officer of the court whose responsibility is to protect both creditors and debtors. As a potential purchaser of a property under the control of a Trustee, you can certainly contact that Trustee and walk through the process.

Myth #4: If there’s any equity in a house, the Court won’t allow me to buy it

Truth: Indeed, one of the Court’s responsibilities is to evaluate the debtor’s estate and see how as many creditors as possible can be paid. But there’s a big difference between a house having enough equity for the Court/Trustee to want to go to the trouble to sell it and a house having enough equity for a real estate investor to find a good deal. For example: (a) The Court will have to factor in a Homestead Exemption payment to the debtor (a real estate investor doesn’t have to do that). (b) The Court will also have to factor in “yellow pages” prices for any necessary repairs (most investors have less expensive resources). (c) The Court will be selling the house through a full-service realtor, who will be charging a 6% or 7% commission, whereas an investor may use a “flat-fee” listing service or want to keep the house as a rental. (d) The Court doesn’t have the opportunity to negotiate a “short-sale” with the lender(s) and we all know that investors can make TONS of money in the “short-sale” market.

Myth #5: There are no pretty houses in bankruptcy

Truth: People with nice, expensive houses get in financial trouble just like folks with more modest or “ugly” houses. In fact, some of the biggest deals Mark and I have done have been with VERY nice houses in VERY nice neighborhoods! In fact, we’ve each had the opportunity to do “short-sale” purchases on homes in the $300,000 – $400,000 range. Listen, Greenville is not that much different from any other city. People get in trouble, they live in a nice house, things go wrong and they’re forced out. Not everyone trashes the house and leaves it in shambles. You can find Pretty Houses in and around Greenville, Anderson, Spartanburg, Clemson, Seneca, heck…and any little back woods hollow in South Carolina you want to invest / buy in.

Myth #6: There are no investing opportunities for houses in bankruptcy … mortgage balances are too high

Truth: This issue was dealt with briefly in Myth #4, but there’s more to know. In fact, because of the circumstances leading most debtors to file bankruptcy, there may be MORE opportunities in bankruptcies than elsewhere. Four of the reasons for the many opportunities are: (a) Most investors are afraid to deal with a bankruptcy … or don’t know how … there is less competition … where there’s less competition, there’s more opportunity! (b) We’ve heard all sorts of figures, but (conservatively) 70 – 80% of all Chapter 13 payment plans fail … which leads to extremely motivated sellers! (c) Many debtors were facing foreclosure when they filed bankruptcy so when they realize they may not make it through the bankruptcy, they often realize they have run out of options and they MUST sell their house to avoid foreclosure. (d) Mortgage companies that loaned money to these debtors have really been drug through the legal system … foreclosure, bankruptcy, then back to foreclosure … so the mortgage companies can also be extremely motivated to negotiate a “short-sale” so they don’t end up owning the house via foreclosure. Yet ANOTHER opportunity for the real estate investor.

These are just some of the many myths surrounding bankruptcies and the many unknown opportunities for real estate investors. A little education can go a long way if you can see the incredible profits available in this niche market!

Don’t think for a minute that South Carolina is immune to bankrupticies. They’re not.  Fact is, your neighbor on Agusta Road, or Hwy 25 or Hwy 11 may be going through bankruptcy at this very moment.

Greenville, SC is as good as any place to buy and sell properties in bankruptcy.

Caryn McKinney & Mark Klee
Real Estate Investors & National Trainers- Atlanta, GA


This article is brought to you by the Upstate Carolina Real Estate Investors Association. (UCREIA)
Information about UCREIA’s Educational programs can be obtained off this website or by contacting the club’s Dir. of Education, Karla Kuhn

Authors Mark Klee & Caryn Mckinney are long time investors in the Atlanta, GA area.
You can find additional informtion from them at  www.PostBankruptcyReport.com

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