What is Property Preservation?
Property preservation, also known as Mortgage Field Services, is the art of maintaining a bank-owned property in a suitable condition until the mortgagee (the lender who has foreclosed upon the property), can sell it to a private party or at an auction. Property preservation focuses on maintaining the inside and outside of a foreclosed property to keep it as saleable as possible. A bank-owned property that falls into disarray while waiting to be sold generally becomes far less saleable and thus, loses its inherent value. In the world of banking, a foreclosed property is mostly referred to as an REO — a bank-owned Real Estate Owned property.
What is REO?
Technically, an REO is a classification of real estate, an asset that is owned by a lender who financed the property at some earlier date, with borrowers who stopped making monthly payments, for whatever reason. The common attribute that lumps these properties together in the REO category is that they were obtained through foreclosure actions by a government agency, a bank, an asset management company or a government insurance agency. The following list details the government’s biggest players in the property preservation business –
- Department of Housing and Urban Development (HUD)
- Federal Housing Administration (FHA)
- Veterans Administration (VA)
Lenders holding REO properties use property preservation services to salvage the properties they now hold as collateral on debt that has gone bad.
How to Start a Property Preservation Business
The most logical way to start a property preservation business is to understand how the REO marketplace works and to keep up with the most current lists of foreclosures that are either pending or adjudicated. This upfront research will also help you understand how the players in the property preservation business interact with one another, and where new business can be generated.
Property Preservation Business Due Diligence
To understand the property preservation marketplace and how professional relationships are developed, it is best to consider some of the most prominent research-oriented companies that include –
- IBISWorld.com — This company offers meticulous research data that is valuable for those who are learning how to start a property preservation business.
- FirstResearch.com — This company is a preeminent organization known for its market analysis tools.
Both IBISWorld and First Research’s industry insight and reporting tools require a fee, however, for those who want to understand how to start a property preservation business with the best chance of success, the cost of the information is small in comparison to the value it provides you. It is noted that the United States Census Bureau provides a no-cost Fact Finder Tool to complement your other research methodologies.
Educating Yourself Regarding Property Preservation
There are many facets to understand before you start a property preservation business. Here are a few topics to consider when developing a property preservation business plan.
- How does the United States foreclosure market operate?
- Where to begin to find customers?
- How to sign up with banks, lenders, asset management firms and HUD to gain access to new and continuous business?
- What is a property preservation specialist required to do?
- Cleaning and securing the property.
- Updating the property, if requested.
- Preserving the property, or as some call it, its curb appeal.
- Who is responsible for maintaining the property’s garage, sheds, swimming pool, and/or spas?
- What does a day in the life of a property preservation business owner look like?
And the information noted above is just the beginning. There is a lot to learn when learning how to start a property preservation business. So, if you seek to start a stable property preservation business that operates for years, it is best to begin on the right foot. To understand what HUD expects of their property preservation contractors can be found at this link.
The Basics of Starting a Property Preservation Business
How you start a property preservation business resembles the ways in which you start many other business types/entities.
- Choose the most prudent business entity formation that suits the business, protects you personally, and minimizes tax obligations. The choices include a Sole proprietorship (which is generally avoided to the fact it leaves a business owner exposed to financial and legal risks), an LLC, or a Corporation, to name a few. This decision is best achieved by consulting with an attorney.
- Create a detailed, accurate business plan. Many business-support companies, like GoSmallBiz, have business plan creation software to help, in addition to unlimited consultations included in its affordable monthly plans. Property Preservationists are forewarned that choosing to NOT create a business plan for your property preservation business is to start a business venture without the tools required for success.
- Consider the types of insurance you will need to properly protect the business’ assets, liability and yourself. Expert business consultants are a great resource for determining insurance requirements.
- Obtain any required business license(s).
- Choose which vehicle (typically an insured and licensed van) will be used to carry equipment and tools from job to job.
- Buy the required equipment to properly perform your job as a property preservation business owner.
- Determine your marketing strategy (i.e. business cards, website, social media accounts) and a feedback technique to allow you to easily determine the effectiveness of the marketing strategy.
Property Preservation Startup Costs
The expenses noted below are the basic startup costs when opening a property preservation business. They should be used as guidance because these estimates will vary a bit from location to location, and from business to business.
|Legal consult fees regarding business entity choices and other Legal Matters.||$2,000|
|A property preservation dedicated website.||$750|
|Assistance with the development of a business plan.||$100 — $500|
|Upfront Insurance costs and business licenses/fees.||$4,000|
|Upfront business expenses and marketing provisions and business consultations.||$2,500|
|Vehicle purchase. This can be a no-cost item if you currently own a vehicle.||$0 — $30,000+|
|Purchase of required equipment and supplies.||$2,500 — $3,500|
|TOTAL||$11,850 — $43,250|
Ways to Finance a Property Preservation Business
Many small businesses are financed through the owner’s savings or retirement savings. However, if that is not a possibility, there are several startup business financing options designed specifically for entrepreneurs and new business owners as the lending guidelines are more lenient than traditional business financing. Consider the following-
- A No-Income Verification Line of Credit.
- A Stated-Income Business Line of Credit.
- A No-Documentation Business Line of Credit.
And for those entrepreneurs interested in starting a property preservation business with less than perfect credit, you may be able to qualify for a microloan.
Get up to $50,000 in Microloans or Grants
Get up to $250,000 in Business Credit Lines
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