How To Start A Foreclosure Cleaning Business: Information To Get Your First Foreclosed Property
Are you looking for a new business opportunity?
Have you ever thought about starting your own foreclosure cleaning business?
This can be a very profitable venture, but it is important to do your research first. In this blog post, I’ll discuss the basics of starting a foreclosure cleanup business and provide you with some helpful tips!
This post is for general informational and educational purposes only. You can read the full disclaimer for more information.
What is a foreclosure cleaning business?
A foreclosure cleaning business is a service that helps to clean and even maintain properties that have been foreclosed on by the bank. This can include tasks such as removing trash and debris, cleaning up the yard, and making minor repairs.
There are a number of reasons why a property may go into foreclosure, but the most common reason is because the previous owners have fallen behind on their mortgage payments. This can happen due to things like job loss, medical bills, or other financial hardships.
Once the homeowners are unable to catch up on their payments, the bank will eventually foreclose on the property. Or take ownership of the property and evict the homeowners.
When the bank takes ownership of the property, they will often times hire foreclosure cleaning services to come in and clean up anything left behind by the previous homeowners.
Things to consider before you start a foreclosure cleaning business
The first is probably the most obvious, this business can be hard work. It includes a lot of physical labor. So, you need to be prepared for that. And depending on the size and condition of the property, it can take a lot of time and effort to get it cleaned up and ready for sale.
Next, you’ll need to find dependable subcontractors. It’s likely that you’ll be working with an independent contractor, trash haulers, cleaning services, locksmiths, handymen, and tow truck drivers.
You don’t want to lose a job because the people you hired were unable to do the work on time or properly. Your reputation is everything in this business. So, it’s important to find someone who is reliable and will do a good job.
Lastly, you need to be organized. You’ll be working with a lot of different people and properties, so you need to be able to keep track of all the tasks that need to be completed.
The good news is the cleanup of foreclosure properties makes an excellent home-based business in which you can be your own boss.
How to start a foreclosure cleaning business
To get started you’ll need to write a business plan. This will help you organize your thoughts, set some goals, and figure out the costs associated with starting and running your business.
The first section of your business plan is the executive summary. This is a brief overview of your business and what you hope to achieve. Use this section to include your mission statement, your product or service, and information about your company’s management. You’ll also want to discuss financial information and your growth plans if you plan to ask for funding.
The second section is your company description. Here you’ll want to provide more details about your business. Exactly what services do you offer? Will you only offer trash removal services or will you offer routine maintenance? What is your target market? Is your target market homeowners or corporate companies? Why do you think your business will be successful?
The third section is your market analysis. In this section, you’ll want to discuss the industry trends and how they will impact your business. What is the current state of the foreclosure market (in your area)? The top 5 states experiencing a high rate or wave of foreclosures today are Illinois, New Jersey, Ohio, South Carolina, and Nevada (source). Are there more foreclosed homes now than in the past? How do you think this will impact your business?
The fourth section is your organization and management. Describe how your company will be structured. You can form a sole proprietorship, limited liability company LLC, partnership, or corporation. You’ll also want to include information about your employees and their qualifications.
The fifth section is your service or product line. Describe the services or products you offer in detail. These may include hauling trash, rekeying the locks, fixing broken doors or windows, painting, basic yard maintenance, and towing abandoned vehicles. What are the benefits of your services or products? Explain how your services are initiated and carried out.
The sixth section is your marketing and sales strategy. How will you market your business? Plan to include multiple ways of marketing including online marketing, print advertisements, and personal selling. You’ll also want to discuss your sales strategy. How will you generate sales? For example, will you offer discounts for multiple services? What is your pricing strategy? You can charge by the job, by the hour, or by the day.
The seventh and final section is your financial projections. This is where you’ll include your start-up costs, income statements, cash flow statements, and balance sheets. If you’re seeking funding, this is also where you’ll include information about your investor’s return on investment. Another option for funding may be crowdfunding sites like Kickstarter or GoFundMe.
Foreclosure clean-outs have a huge income potential with low start-up costs. With the right planning and execution, you can create a booming foreclosure cleaning business that provides an important service to your community.
Register your business
Once you have your business plan, you’ll need to come up with a business name. Plus get the necessary licenses and permits for the type of service you’ll provide. This will vary depending on your location. But you’ll likely need to register your business with your state and get a business license. States tend to regulate business activities like auctions, construction, and the sale of goods and services.
Permits that you may need include the hauling and disposal of hazardous materials.
Obtaining an EIN number from the IRS is also required. An EIN number is used to identify your business for tax purposes.
Get business insurance
If you plan on working with banks to get foreclosure cleaning contracts, you’ll likely be required to have business insurance. Banks typically want you to have a business owner’s policy that includes general liability coverage and commercial property insurance.
You may also need to get bonded in order to work with banks. Bonding is insurance that protects the bank against any losses that may occur due to your company’s negligence.
And consider picking up workers’ compensation coverage if you plan to have foreclosure cleaners working for you.
How to get a bank contract to clean out their foreclosures?
In order to get a contract with a bank, you’ll need to put together a proposal that outlines your services and costs. Will you provide extensive cleaning? Do you have a permit to haul and dispose of hazardous material?
Your proposal should outline your best qualities and why the bank should choose you over other companies. It’s also a good idea to have a portfolio of your previous work along with referrals or testimonials from other satisfied customers.
Once you’ve put together your proposal, reach out to banks in your area and inquire about their contracting process. Put together a real estate owned or REO bank contact list for your reference.
Try to arrange a meeting with the bank or foreclosure manager to discuss your proposal in person.
Be prepared to negotiate the terms of your contract. If you’ll able to complete the job in a short amount of time, you may be able to charge a higher price.
But keep in mind that banks are often looking for the lowest bidder, so you also want to be competitive with your pricing. And consider offering a discount for multiple services.
Banks may have you go through a bidding process in order to get the contract. The bank will send out requests for proposals (RFPs) or foreclosure cleaning bids to a number of companies. And then choose the one that offers the best value.
You can find out which banks own foreclosed properties in your area by searching online or contacting your local county recorder’s office.
What are lenders looking for in a cleaning service?
Besides having insurance and being bonded, many lenders or banks are looking for a full-service management company. This would include not just the estate cleanout, but also securing, winterizing, and maintaining the property until it is sold.
Some lenders are also looking for companies that can provide additional services like lawn maintenance, snow removal, or even minor repairs.
If you can offer a comprehensive package, you’ll be more likely to win a contract.
How do banks pay?
Many banks can take a long time, between 90 to 120 days to pay an invoice. So you’ll need to make sure you have enough funds to meet your every day or short-term needs.
You may also want to consider offering a discount for early payment. This can help you get paid faster and improve your cash flow.
Invoices can be paid by check or direct deposit depending on the bank’s policy.
If you’re in need of cash sooner you can factor your invoices. Where you sell your invoice to a third party. They pay you a percentage of the invoice upfront and then collect payment from the bank when it’s due.
Cleaning a foreclosed home
So how should you organize your cleanout? To give you a place to start I outlined a possible workflow for you.
First, you’ll need to schedule a time with the bank or homeowner to gain access to the property.
Next, do a walkthrough of the property to assess the work that needs to be done and use your digital camera to take pictures.
Then, create a detailed estimate for the job and submit it to the bank or homeowner for approval.
Once you’ve received approval, schedule your crew and equipment.
Bulky and large items are usually removed first. Followed by general trash and other debris. If necessary, old materials such as flooring, carpets, walls, doors, windows, and other fixtures are removed next.
After that, any minor damages will be fixed and interior cleaning will be done. This includes vacuuming, dusting, and mopping.
After interior cleaning, exterior cleaning and yard work will take place. Fixing structures such as roofs, decks, sidings, and fences will happen last if necessary.
And finally, write up the invoice for the bank or homeowner.
Bank contacts and REO agents aren’t the only ones you should have in your contacts. Knowing the right real estate professionals can be just as important to your business.
When a home is listed as being in pre-foreclosure, that means the homeowners are behind on their mortgage payments and the bank has started the process of foreclosing on the property.
The homeowners will usually try to sell the property themselves first in order to avoid a foreclosure on their credit report.
But if they’re unable to sell the property, it will eventually go into foreclosure and be sold at a sheriff’s auction.
You can find out about upcoming foreclosure auctions by searching online or contacting your local county sheriff’s office.
If you’re interested in a particular foreclosed property, you can also contact the real estate agents listed on the foreclosure notice.
They may be willing to give you access to the property so you can take pictures and create an estimate.
Corporate companies may also hire you to clean out their foreclosed properties.
Consider being a subcontractor for another foreclosure business that has some years of experience. This can help you get your foot in the door and learn the ropes before starting your own business.
Closing the deal
This deserves repeating. Before closing the deal meet the owner for a walk-through.
Make sure you understand what is being asked of you. If there are any discrepancies, now is the time to bring them up and get clarification.
You want to be able to properly price the job. You’ll also need to make sure you have the right tools and people for the job.
Marketing your business
There are a few things you can do to market your business. You can start by creating a website and social media accounts.
Your website will be a great way for potential customers to learn more about your company. You can also use it to showcase the kind of work you do and testimonials from satisfied clients.
Social media is a great way to connect with potential customers and build your brand. Facebook in particular allows you to join groups relevant to your industry.
You can also use social media to post pictures and updates about your company. This is a good way to show potential customers what you’re working on and the progress you’re making.
In addition to online marketing, consider passing out flyers in your local area. With permission, you can put up posters in local salvage yards and storage facilities.
Word of mouth is always one of the best forms of marketing. So be sure to tell your friends, family, and neighbors about your business.
Hand out your business cards in your local area. You never know when you’ll meet someone who’s in need of your services.
Another way to market your business is to attend local real estate investor meetings. Here you can network with potential customers and learn about upcoming foreclosures in your area.
How to start a foreclosure cleaning business takeaway
Starting a foreclosure clean-up business can be a great way to make full-time or extra money. There’s a lot of work involved with a foreclosure cleanout service, but if you’re up for the challenge, it can be a very profitable business.
Do you have any tips on how to start a foreclosure cleaning business? Share them in the comments below!