How does your investor get access to an REO house to inspect?

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How does your investor get access to an REO house to inspect?

Alnise O.
Virtual · Member since 2009 · 20 posts · 4 votes

[b]New to wholesaling REO's. Below I have outlined the process but I have a few questions in between to see if I understand the process correctly. I have a buyer's list and most have all cash. Any responses will be greatly appreciated.

1. Find a deal...I have agents sending me listings, check the Bank sites, and talk to people to screen if they are motiviated.

2. Go with my POF and look at the house. How do I get my investor into the house without cutting myself out of the deal?

How do I get a chance to view the house without the agent there to tell my buyer how much the asking price is?

3. Are there any confidentially contracts [/b]that state my investor can not go behind my back to get the property through my source?

4. I do have a buyer's list as I stated before but, [b]should I make an offer on the house and sign contracts once I have a contract signed by my investor? If not, what should I do?

5. Once the deal is accepted and the contract is signed between me, the bank or REO agent and my investor, [/b]what else should be sign an affadavit? addemun (excuse my spelling error)?

6. Call my lawyer and open up an escrow and have my flash funding source send the money? [b]Or should the investor send the lawyer the money and then I wait until the day before we close to notify my flash funding source to send it? Because it has to be closed the same day.

7. When closing on the same day, I do not want to inform everyone this will be a double closing.[b] Do I have to?

8. When closing on the same day to avoid telling them, [/b]could I schedule the closings hours apart on the same day? Or does the bank or REO agent usually decide the times?

Thanks in advance for all feedback.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    17y

    Alnise,

    I think one key point you're missing here is that you should be putting the house under contract before you start showing your buyers the house. While you can (technically) show your buyers before you have the house under contract, you run into a couple risks:

    1) The buyer could go around your back and buy the property directly from the bank; or

    2) You may not be able to get the property under contract, in which case you may have just wasted a bunch of your buyer's time and effort.

    Some REO wholesalers will wait until they are confident they can get a property under contact before showing their buyers; for example, they may wait until the bank has countered at a low-enough price, but then continue to negotiate even lower while they get their buyers interested.

    Hope that makes sense...

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    You're going to need to find out what your local market is like. Around here, there's no way I would bother showing a REO to someone else until I have a contract. That's because most (90-95%) REO offers don't go anywhere.

    If you're going to try this with REOs, you need to find a friendly agent to work with. You'll need that agent to show you properties, and to let you in to show your investors.

    You're going to have two separate contracts. One between you and the bank, and a second one between you and your buyer. You'll need the first one accepted before you even bother with the second.

    The bank will choose the title company for their transaction. You may have to use a different title company for the second transaction. Be sure to find a title company who's willing to do that.

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  • Corey Demuth
    Real Estate Agent · Tampa, FL · Member since 2009 · 456 posts · 123 votes
    17y
    Originally posted by Jon Holdman:
    Around here, there's no way I would bother showing a REO to someone else until I have a contract. That's because most (90-95%) REO offers don't go anywhere.


    Thank you so much for saying that. Every time I put down REO's I get a litany of responses about how wonderful they are and how so-and-so buys them all the time for less than half price and bla bla bla... I really think these people have NEVER actually closed a REO deal. In reality the banks tend to have a lot of cash investors making highly qualified offers so yours looks like crap if you don't have proof of funds and a decent offer.

    Putting offers out on REO's is like trying to get your money back from a real estate guru... you make a whole lot of effort but you rarely hear anything back for months; when you finally do, it's not what you want to hear..
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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    Well, I do chase REOs. I have one right now I should close on in the next few weeks. And a short sale that looks very promising. But I looked at about 50 houses, and wrote about 25 offers to get to this point. Not at all saying don't chase them. Just saying that it takes work. Like everything about this business.

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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    Alnice,

    Since REOs are listed with agents, it is very difficult (nearly impossible) to get in to see the property without the agent present. To be successful in business, you MUST develop a good working relationship with people. In the wholesaling business, that necessarily includes a good real estate agent and a core group of investors that will buy your properties.

    Yes, you can have the buyer sign an agreement that he won't go around you on deals you show him. However, how are you going to enforce it? Are you going to sue him when he steals your deal?

    If you find a truly great deal, you should immediately put it under contract. I would certainly put it under contract before I show it to potential buyers. If you're not finding great deals, then unless you're dealing with newbie investors, no-one is going to buy it anyway.

    Now, here's the big question? What are you going to do when your buyer fails to close at the last minute? Deals can and do fall apart at the last minute - sometimes at the closing table. If you've closed using a flash funding source and then your buyer backs out at the closing table, what are you going to do? I wouldn't wait until it happens to think about it.

    Mike

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  • Alnise O.
    OP
    Virtual · Member since 2009 · 20 posts · 4 votes
    17y

    Hey Mike,

    I was thinking of selling it assigning a contract on it twice. Should the investor pull out last minute.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    Eh? Not sure what you mean. Banks won't allow you to assign the contract at all on a REO. They typically have an addendum to the effect that you're not going to assign it.

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  • Alnise O.
    OP
    Virtual · Member since 2009 · 20 posts · 4 votes
    17y

    Well I did not mean assign the contract, but I meant set up an agreement with a back up buyer. Basically have them sign something that says just in case the closing falls through and you are interested we can do a deal.

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  • Ryan Stirling
    Real Estate Investor · CA · Member since 2009 · 36 posts · 2 votes
    17y

    I'm pretty sure MikeOH is going to say the same thing, but what happens if your "back-up buyer" falls through. You have to consider the possibility of you going through with the closing without someone taking it off your hands. What happens then?

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  • Alnise O.
    OP
    Virtual · Member since 2009 · 20 posts · 4 votes
    17y

    Ryan,

    I did not anticipate that. Do you have any suggestions?

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    When you're making offers on a REO on the MLS, you will have to put up earnest money. How much depends on the property and what the bank requests. For the $60-80K properties I look at, its typically $1000, though as low as $500 and as high as $1500. As soon as you have an accepted offer, that check will get cashed. If you bail out based on the inspection or financing contingency, you get it back. If you get to the point of scheduling a closing, you'll be past both of these. If you don't close, you lose your earnest money. You'll probably also not get any more offers approved by either that bank or the listing agent.

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  • Jeffrey K.
    Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
    17y

    Not to discourage a new investor, but this has waste of time for all parties involved written all over it. Let me start by disclosing that I have never wholesaled a property, but I look at several REOs a week and just closed on one a few weeks ago. The first red flag was you said screen seller to see if they are motivated. It is a BANK!!! I would sure hope they are motivated to get the bad paper off their books. Most banks are, but the ones who are not are known in the community and a good agent will tell you to not waste your time until the price is what you want it for. These listings have often been on the market for a year with little to no price reduction.

    You NEED an agent to look at REOs if you are not an agent yourself. MOST agents do not like REOs because they are dirty, take a lot more work, sell for less, and have screwed up their retail business. They DO NOT want to show them more then they have to. Your agent will not like you trying to flip on contract on their time. They hold their own open houses on Sundays for their listings and do not want to hang out in a crap hole while you have an open house for investors who are not sure they are going to buy it.

    My agent may be a snob, but I go into an REO and I take 10-20 minutes to look around and come up with a number while walking to the car and that is it. REO’s are a competitive game. All of my luck has been because of fast reaction. If you see a good deal or a price reduction that puts the property in your ballpark, you need to pull the trigger right away. My market is very competitive for REOs in good areas with good prices. If it is priced right it will have 10 offers over asking price in the first day. This is why I don’t think that REO’s make for good wholesaling opportunities. Banks do not often give you enough room for a profit on these lower end houses because they only take offers close to asking price. No one is going to pay you for something they could have done themselves. We pay wholesalers to do the hard work for the properties off of the MLS. We pay agents to send us REO listings and show them.

    I am sure people are going to disagree with me, but it seems like a bad time to start wholesaling. If you are already established and have the money for marketing and have it down to a science I am sure you can make money in this market. Otherwise, I see you wasting a lot of people’s time and making them angry. Get a second job if you can, or stop going out to eat and save money to buy a rental and hold it for a bit. This is hard work, but cant be any more work than trying to flip REO contracts. You also do not have to try to time the market like you do when wholesaling.

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  • Corey Demuth
    Real Estate Agent · Tampa, FL · Member since 2009 · 456 posts · 123 votes
    17y

    I think wholesaling REOs may be bad right now but wholesaling in general, at least in theory, should always be viable. The market is low so prices are low, I have been getting a TON of interest from investors (buyers) because they know they can get property cheap right now.

    And, on the selling side, people who are about to foreclose or can't move a property that is destroying their finances/credit, eventually have to face the facts and sell for whatever they can get.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    17y
    Originally posted by Corey Demuth:

    Putting offers out on REO's is like trying to get your money back from a real estate guru... you make a whole lot of effort but you rarely hear anything back for months; when you finally do, it's not what you want to hear..


    Just like everything else in real estate, your experiences may vary. Personally, I have purchased 10 REOs in the past 8 months, so I have a pretty good understanding of the process.

    For the 10 REOs I purchased, I put in offers on exactly 28 REO properties (some properties I put multiple offers on). So, in terms of my success rate, it's better than 1 in 3.

    There are certainly things you can do to improve your chances of getting an REO under contract. A couple suggestions:

    - Go after the properties that have been on the market for more than 6 months. Banks are willing to accept much lower offers on these than those properties that are new on the market;

    - If your offer is rejected, resubmit every couple weeks. Many REO asset managers have very short-term memories, and if you catch them on the right day, they may accept the same offer they rejected last week;

    - Include as few contingencies as possible in your offer. This includes no financing contingency, no appraisal contingency, and no due diligence contingency;

    - Increase up your earnest money deposit. Even a $2000 EM deposit separates you from the rest of the compeition. And if you really want a property, make it even higher (I once offered full-price in earnest money, and my offer was accepted over another offer than was $10K more);

    - Build a relationship with the REO listing agents. I have listing agents that will tell my wife (my agent) what the other offers are, what the bank is likely to accept, etc. In addition, we've had a couple agents ask what our highest offer is, and then just beat up the bank to accept it, letting the asset manager know that we're good buyers and we're certain to close the deal.

    Just because lots of people are seeing very low success rates with REOs doesn't mean that's how it has to be. Just like with anything else, if you're serious about it, you can figure out ways to make yourself more successful than others.

    Btw, I'm sure there are plenty of people who will say that I'm probably just paying too much for the properties, but my average profit on the REOs I've purchased and resold is over $26K each.
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  • Account Closed
    Real Estate Investor · Member since 2009 · 49 posts · 0 votes
    17y

    I have much experience in these areas and have written a book [SOLICITATION REMOVED]. I teach a hybrid Bird Dog/Wholesale model that gets around contract assignment and is 100% legal in GA and most states. Many of these properties have self-service lock boxes with a small set of codes in circulation. If you've seen as many as I have,
    you get many of them committed to memory. BP has the forms you seek.

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  • Account Closed
    Real Estate Investor · Member since 2009 · 49 posts · 0 votes
    17y

    B.P. has the very forms you seek.

    0Reply
  • Raynal Fils
    Residential Real Estate Agent · roselle, NJ · Member since 2008 · 18 posts · 1 vote
    17y

    This has been an interesting topic and I thank Jon ,Scott and everyone who has opinated on the subject.We benefit deeply from you just by following your suggestions and advices.By learning from you we the newbies can avoid making stupid mistakes in the future.Very interesting.

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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    In other words - BE CREDIBLE! That was exactly my point about having a plan if your buyer falls through. If that occurs and you don't close, you will lose all credibility with the bank and the agent. That news will travel fast and you'll be out business (at least with REOs) and as Jon said, you'll be out your earnest money. Furthermore, many banks put a penalty in their contracts if the closing is late. This is typically $100 per day in my area.

    Mike

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  • Jeffrey K.
    Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
    17y

    The bank out of Utah that I just bought from here in Milwaukee charged 250 a day for late closing, but when they were late two weeks it was too bad for me. I had crews waiting, material getting wet, and am cutting into prime rental season doing a rehab. Buying REOs might not be the best deal after all. They are less work to find, but harder in every other aspect.

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