Getting started with REOs
Hey BP,
I wanted to start acquiring REOs to wholesale. Does Anybody have any advice for me dealing with REOs?
I am new to this and I am all ears. Thanks in advance for the advice!
I already have an attorney that does dry closings also, I know that is something that is very important.
@Rashad Brooks, speaking form my personal experience wholesaling HUD properties, you have to be very careful marketing to sell. I got chewed out by a couple listing brokers when they caught me and decided it just wasn't worth the hassle anymore. Not sure of any legal ramifications, but there may be some. Now if you are actually closing and holding title to these properties then its a nonissue.
@Christopher Goldie Thanks for the advice. When I do this I will be only sending them directly to my buyers.
The big things about REO's are the following:
- You can't assign
- No contingencies
- Cash only
- Typically, $1,000 EMD minimum nonrefundable
- Typically, short closing window - 21 days or less
- Typically, the bank pays the commission (3%) and closing costs
@Account Closed Thank you for the information. All those are very important details that I need to know!
#2 Foreclosures Contributor
- Paradise, CA
Originally posted by @Account Closed:
The big things about REO's are the following:
- You can't assign
- No contingencies
- Cash only
- Typically, $1,000 EMD minimum nonrefundable
- Typically, short closing window - 21 days or less
- Typically, the bank pays the commission (3%) and closing costs
REO purchases are like any other purchase. You can finance REO purchase. The only cash transaction requirements would be for those that are not financeable due to some issue (Like deferred maintenance or city/Fanny/Freddie/FHA requires fence around pool and there is no fence or maybe the property type is not eligible for sale on secondary market or any number of other reasons) but short of that, anyone can finance an REO purchase if they meet the lender's requirements. I sell my REO all the time with financing. I prefer cash buyers but there is nothing wrong with me getting my cash in 30 days at full market price over a cash price with a discount because it will close sooner. My observations are similar to yours @Lock Mett with a few differences:
- Contingencies vary depending on the issues of the property. There CAN be contingencies.
- EMD varies and are refundable typically. Any qualified agent representing the buyer will build in refundable component of the EMD in the contract.
- There is no typical closing window. Those will vary depending on the complexity of the transaction.
- Bank pays all commissions all the time and any closing costs are negotiated like any other open market transaction. Since the bank owns it and is the seller, who else do you think is gonna pay the commissions other than the seller?
- Bank also wants to see proof of funds for cash or preapproval from lender if financed.
In my market most of the REO's are so high priced that after you figure in rehab cost your close to full market value....tough to wholesale.
@Rich Johnson-- Same here in the Buffalo market! The price I need to buy at to rehab and turn a profit is much lower than the algorithm the bank uses to calculate the price they'll let an REO go for. They price it close to full market and they don't budge. It's very frustrating! Have not been able to negotiate down the price on even 1 REO in the last 6 months I've been looking.
I have also heard this. These properties might not be for a rehab buyer. I have a few buy and hold investors that might pay for the REO properties at a higher price. I will just have to see what I can get my hands on.
Thank you both for your feedback!
@Rashad Brooks I have also become interested in investing in REOs recently and have noticed the same-many make for better buy and holds for me than flips, due to the price. Hopefully some will come around soon where there will be a profit to make after the rehab and sell.
Question- has anyone purchased a home where a prior rehabber was foreclosed on? It shows up on the MLS as a home that has half (or less) of the home renovated, but still in need of further renovations. I'm a little cautious of this, as I'm not sure if they foreclosed due to funding and time, or because they came across something at the property that they felt was too much to fix. Any thoughts or experience with these type of REOs...I've come across about 3 in the last 2 weeks.
In the meantime, wish you well in your investing!
Hi Rashad
Big problem with REOs and HUDs is the earnest money deposit goes hard (nonrefundable) very fast in most cases. Sometimes right away or in a few days. Problem is, if you find a problem with the house after the EMD goes hard, and you try to back out of the deal, you can probably kiss the earnest money deposit funds goodbye, with no recourse.
Hope this helps.