Last night I went to Jon’s rei meeting and he had a great speaker. Actually it was the first ever speaker at the meetings, but that is mainly because the group just got started up this year. Jon brought in an REO broker to explain to all of us how that game works.
Pretty much all the information that he gave has been relayed to me before by reading Steph Davis’ Blog about Flipping Reo Properties and from her eBook (affiliate link). But, it was great to hear this from an REO Broker’s vantage point.
Steve, the REO Broker, Made some good points that I’d like to share with all of you as I understood them.
They love dealing with Cash Buyers: Cash buyers allow them to move quickly and it really makes your offer a strong one. Make sure to come with a proof of funds though or he won’t be able to work with you.
Banks won’t usually consider your offer if it is less then 20% of the asking price: Steve has been an REO broker for more then 10 years and says offers like that usually don’t get taken seriously and are ignored. It’s best to wait for the bank to drop the price down closer to your number before submitting an offer.
Best properties to go after are junkers that have been on the market for a while: This is the way Steph does business so you can’t really argue here. The nicer properties will end up being sold at closer to retail prices and aren’t worth your time.
Build a relationship and they will call you first: Steve showed us all the “pocket listings” or up and coming inventory that hasn’t been listed yet but he knows is coming down the pipe. He won’t know the prices yet, but will notify you if one of those properties meets your criteria. Really gives you a head start to find a buyer. I thought I heard him say that sometimes he’ll get notice of a house 6 months in advance of it being listed. Not sure about that though.
Banks don’t have as much incentive to get rid of properties like some of us think: the explanation was that all the expenses for holding onto the property can be written off. When banks write off expenses it allows the bank to be able to lend more money. Steve explained it better, but I lost something between last night and now..haha. What this means though is the banks are, in many cases, in no hurry to sell the property at huge discounts.
If you have experience with REOs and can ad to (or correct) what I have said leave a comment.
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Good info, Scott.
We (or at least I) always assume the banks cannot wait to dump these REOs. Interesting to learn that’s not always the case.
Scott – if I had to write a quick summary of how to buy REO’s – I would say that this is spot on and precisely summarizes my success on buying bank owned’s. As you know I have purchased a BUNCH this year (around 15) – so I know what I’m talkin’ about.
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This seems spot on. I’d spotted an REO about three months ago at an online auction. After the bidding ended, I was under the impression that the property had been snapped up at a very good price by the high bidder. I just saw the same property listed on their website again so it looks like they rejected that bid. So like you said, banks aren’t in that big a hurry. Hmmm.