BiggerPockets

I spoke to a real estate friend of mine and he gave me the low-down and difficulty of dealing with REO brokers.

The bottom line is that these reo brokers only deal with a select crop of investors. Newbies need not apply. So how in the world can a newbie break into the world of REOs and know that I can pick up a real deal instead of an inflated deal from a wholesaler?

P.S. I want to wholesale these REOs

Let me clarify. I can buy an reo easier from a wholesaler. But that only means that the price is inflated. I should have clarified my statements.

There has to be a beeter way to make a living!

A good wholesaler will be able to negotiate and contract a deal with enough spread that after the mark-up, is still a good deal for an investor-buyer. That stated, adding two parties in the middle (you buying from a wholesaler, then wholesaling yourself) does NOT work as the deal becomes too conveluted and the spread vanishes for the final buyer.

IF you intend to wholesale, you MUST form relationships with those who can deliver product at good prices. You may want to start out marketing to "motivated" and distressed homweowners to get good deals locked up. The REO world is firece and the pros have the advantage, but I have assisted many newbies enter into this arena so it CAN be done.

I was once just starting out buying REO's and as such, had to spend the time to create the relationships I have now. I did not happen over night, but I started with one contact, got a deal from him and continued to build my contact relationships with others.

You can play the make 50 offers game as Jon pointed out, but the difficulty in actually getting a deal that way (as Jon also pointed out) is often not the best approach. Almost all my REO deals come to me before the general public has teh opportunity or knowledge of the property and that is the key factor to getting good deals.

Walking into an REO brokers office and asking for these pre-marketed deals is not going to happen. You must first form a relationship with him or her and they must "like you".

I really hate when people try to wholesale REOs. It makes the job of end buyers like me harder. Most banks will not take "jeff k or his assigns" anymore. I now have the LLC I am going to buy it under though out before I make my offer. I dont want to close in my name and have to transfer it out.

There are also tons of other problems that this creates and slows down the process and makes banks more skeptical. N00bs buying REO's with cash is fine (the offer more than I do and deserve to win), but if you are trying to wholesale a deal and are going to take the deal away from an investor and then F around and not follow through it pisses me off. I had this happen on my last deal and it made me hate wholesalers even more. Please become a realtor and leave the buying to those who can close!

Jeff,

Do you have any unresolved issues. My undergrade degree is in phychology. Sorry, I couldn't help it.

Look, I am starting out. I have a great opportunity to by from an established wholesaler and he can even set me up with a hard money lender. But if I buy from him, it will be getto and I become a landlord. I am not intertested at this point in becoming a landlord. I WANT CASH.

So my point is that newbies have it rogh in REOs because the deck is stacked against them if they want to flip.

Well, I live in Saint Augustine and the houses are more expensive there. Maybe I can do some subject-to deals because everyone and there mother is a wholesaler in Jacksonville Florida.

"Luctor Et Emergo"
Struggle and Emerge

Del if you want cash you should bill more hours as a doctor. Wholesaling is not something to start out in. It is a job that very few know how to do well.

If you have no money and do not want to be a landlord you really have no business in the REO market on the Buyer's side unless you are a realtor.

Will,
I had the same thing happen to me, except the broker who had the listing decided to sell it to one of his friends once he knew what the bank would take.

I'm with Jeff here. Wholesaling is nothing more than unlicensed brokering. Yes, there's lots of complexity; like contract assignments, double closings, and transactional funding; that's used to avoid it actually BEING unlicensed brokering. But when you pull away the wool, that's all it is.

Gurus lead new investors to think you can make money quick and easy. I don't see that happening. A few people actually do OK with wholesaling. But its a commissioned sales job. Its not "investing" at all. Its a job. You want a job brokering deals, get your license and get a job with a brokerage and go to town.

I wouldn't use the phrase "out of line". Brokering has a pretty specific meaning, which is to collect a fee for connecting a buyer and a seller. If you're wholesaling, this is exactly what you're doing because you never have any intention to actually hold the property. Because real estate brokering is a heavily regulated occupation, various techniques are used to avoid actually doing a brokering transaction and falling under the regulations. But those techniques are specifically intended to avoid falling into the legal definition of brokering.

If you're buying a property, fixing it up, and re-selling it, you're engaged in an active business. This is really a manufacturing business. You're buying raw materials (junky houses, materials, and labor) and manufacturing a finished product (a nice house.) This is how the IRS sees it, too. The properties aren't investments, they're inventory. And you're not an investor, but a "dealer" (the IRS term.) A developer also falls into this category.

If you're buying properties to hold as rentals, then you're certainly not brokering the property. In the same way that someone who buys a house, lives in it for five years (or five weeks or five decades) and sells it isn't brokering.

In my opinon, "real estate investing" is buying properties to hold. Wholesaling, fix and flipping, brokering, developing, and property management are all "real estate businesses". You may invest money and time into one of these real estate businesses, but they are active businesses, not passive investments. As if rental real estate is a passive investment.