Banks fixing the properties?

Foreclosures
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Banks fixing the properties?

Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes

Hello all,

So I was talking to a realtor this morning and I asked him why there weren't more properties coming on the market as compared to last year. He mentioned that some banks are actually fixing up the properties themselves and then listing them back on the market at or just below the market value. He said part of the reason for this was because banks were getting such bad rep because of the condition of the properties they were selling and how it was affecting the whole neighborhood.

If that's the case that banks are fixing the properties themselves, that can't be a good thing for investors looking for undervalued properties.

Have you guys noticed in your area that foreclosures have slowed down considerably and some banks are fixing the properties themselves?

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Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
14y

Banks and GSEs (Fannie/Freddie), collectively 'financial institutions' (FIs) manage their REO inventory to minimize costs and maximize sales proceeds. I agree with Luis that this practice isn't new. I've been aware of it since 2004... but only with low repair dollars spent. In other words clean up and paint up to sell, not rehab. What is new are some local government enforcement efforts regarding FI property and (related) the extent of some of the FI repairs.

Directly from Fannie Mae's (Federal National Mortgage Association) latest Form 10-Q is this: "Neighborhood stabilization is a core principle in our approach to managing our REO inventory. In the first nine months of 2011, we completed repairs to approximately 69,300 properties sold from our single-family REO inventory, at an average cost of $6,122 per property. Repairing REO properties increases sales to owner occupants and increases financing options for REO buyers." The wording used in this document doesn't exist in other SEC filings prior to the end of 2011Q3.

So in select areas on select properties, FIs are initiating repairs and ultimately saving taxpayer dollars... at the "expense" of an investor's next rehab project.

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  • Account Closed
    Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
    14y

    i've seen banks fixing simple things such as no carpet, or adding an oven and countertops and cabinets--things that prevent FHA buyers from purchasing that house..but i haven't really seen banks fixing up properties to flip standards

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Sharad it depends on the bank itself and what their books look like.

    In a depressed area already it doesn't make sense to do repairs as the property will be vandalized yet again and the bank will
    throwing money down and endless hole.
    If you have say one or two foreclosures on a street in a nice area then yes a bank might do repairs to sell to an owner occupant at a higher price.

    Depending on the age of the home you can't do just carpet and paint.The bank would need to replace all outdated fixtures,countertops,change layout problems,etc. to get full price.

    Paint and carpet will not get them close to full value as a buyer coming in will want everything done.It's like a flipped house that has been half way done.The buyer will deduct all the improvements they will have to make for it to work for them in the offer price.

    There are some banks letting the former homeowners rent in the property.It keeps the property occupied which gets rid of banks dumping for cheap.The bank hopes when they do sell in a few years the market has recovered.

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  • Sharad M.Pro Member
    OP
    Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
    14y

    Bryan A. - This bank spent $15-20k per property to fix up.

    Joel Owens - These properties are in nice area, so chances of break ins are low. I am not sure if the sales were to owner occupant or not.

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  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    14y

    Interesting, I haven't heard of this. I could see a smaller local type bank doing this, but it would be interesting if larger banks were doing this. $15-$20k is quite a bit of money though.

    If this starts happening on a large scale , I could see how it could affect investors.

    On one hand I can see how it might be hard for a bank to focus on rehabbing a property as it is not their primary business, I could also see how it could be beneficial to them especially if they have a team setup to do the rehab they could possibly get discounts,etc as they would be rehabbing a number of properties.

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  • Nick Richardson
    Residential Real Estate Broker · Algonquin, IL · Member since 2012 · 52 posts · 6 votes
    14y

    I haven't noticed much of that here in Vegas. It could be because we have been selling bank owned so fast lately. Our average days on the market has dropped significantly and there is a huge amount of investor activity here for these low priced bank owned homes.

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  • Andrew Isaacs
    Real Estate Investor · Avon, OH · Member since 2012 · 24 posts · 16 votes
    14y

    My team has been doing rehabs for the past few years and we recently started consulting with local banks. We haven't come across a bank that is rehabbing their REO inventory so far, but we have suggested it to a couple of them. We offer our expertise, contacts, etc. to help them. So far none of them has taken us up on this offer. BUT, it has proven to be a good opportunity to educate the banks on what is going on in the market and positions us to make an offer on properties in their inventory.

    So, I see banks considering rehabbing as a good thing for investors. Most banks are going to want stay within their comfort zone... banking.

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  • Andrew Jones
    Investor · Los Angeles, CA · Member since 2011 · 242 posts · 61 votes
    14y

    I haven't seen this in my area, but as mentioned it would have to be area orientated.

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  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    14y

    Well, looks like I'm odd man out because in the last 8 weeks there has been an explosion of banks doing full flip rehabbing in my area, I would say it is nearly 50% of all REO's listed are now fully renovated by the banks.

    I did some digging and found that there using P.P. contractors, and brokers to coordinate it all. I guess I have the misfortune of having ambitious brokers in my area pressing this.

    There doing it smart cost wise, leveraging suppliers for dirt pricing. I have seen rehabs from carpet and paint, all the way to mold remediation, R&R mechanical s, and so on. It sucks, sucks hard.

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  • Albert Hasson
    Investor · Paradise Valley, AZ · Member since 2012 · 361 posts · 214 votes
    14y

    Here in Phoenix we too are seeing many fewer foreclosures come on the market vs. last year. I haven't seen banks fix up properties other than to make them eligible for FHA financing. Competition for the few foreclosures out there is fierce. The investing environment in dismal versus a year ago.

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  • Sharad M.Pro Member
    OP
    Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
    14y

    James Hamling That is a very high number at 50%. It would be really hard for investors to find some good deals.

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  • Ramon Allones
    Real Estate Investor · los angeles, CA · Member since 2008 · 33 posts · 3 votes
    14y

    i think it varies from bank to bank. here in los angeles, wells fargo definately rehabs all their properties, where a bank like chase will not.

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  • Jeffrey K.
    Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
    14y

    I just bought one where the bank put on a new roof and a new deck but didnt trash the place out. This was Well Fargo I think.

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  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    14y
    Originally posted by Sharad M.:
    James Hamling That is a very high number at 50%. It would be really hard for investors to find some good deals.

    Yeah, I know, it sucks, and sucks hard. The competition for deals is a blood bath. All that hit MLS go right into multipules, and the prices are getting driven way over viability by the flood of novice investors who are just seeking a bid win.

    Flipping REO's is all but dead in my are with the exception of some kind of different configuration of the sell component, be it C4D, out state buyers (yes there screwing people with half cooked numbers) or the local Dodo sale (screwing someone here).

    It's rough. What I have unique here I think is we have a major major regional bank, who dominated in mortgages, and is on the verge of insolvency. The have been redeeming on all 2nds since day one, and for those in the know that is rare and says a lot. They seem to leading the march on rehabbing all REO's for final market, and many are following suite.

    I'd love to hear any advice on how to handle the situation. If I had 5 mill chilling I'd just do C4D, but I don't.

    AND TO ALL NOT EXPERIENCING THIS, BEWARE, IT IS A MATTER OF TIME.

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  • Jason S.
    Investor · Diamond Bar, CA · Member since 2009 · 446 posts · 233 votes
    14y

    Banks are fixing without a doubt. I had to sign an NDA on this recently when given the volume/numbers, but yes indeed they are adapting to the market and wiping out those that have been capitalizing on their distress.

    There is an optty/hole - study their approach.

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  • Jason Kim
    Real Estate Agent · Los Angeles, CA · Member since 2009 · 69 posts · 8 votes
    14y

    This was surprising so i did a google search and found this article.

    http://www.repo-homes.com/blog/illinois-articles/banks-rehabbing-repo-homes-for-sale-to-attract-more-buyers/

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  • Mark Yuschak
    Residential Real Estate Broker · Grand Blanc, MI · Member since 2008 · 885 posts · 316 votes
    14y

    It's been going in on my market too. Everything from mold remediation to simple carpet and paint repairs.

    I wouldn't say it's anywhere near the 50% mark. Probably closer to 10%.

    The days of finding rehabs on the MLS are pretty much over. It's been about six months since I've bought a rehab flip on the MLS. All others since have come from auctions, wholesalers and direct marketing.

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  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    14y

    Ok, so it looks like a few of us are on the "front lines" of this issue here, and it's kind of like the first time a tank rolled on the field in WWI, I'm just a sitting in my trench stuck on stupid staring at this un stopable thing wondering "what the frack do I do now???".

    So, anyone got any ideas how to turn this into an opportunity?

    I have the feeling you already have an angle Jason, but in my area, found out about this at the beginning because the banks are using my suppliers for much of it (kind of flattering, says I networked my rehab people well). But I am not seeing where it benefits me.

    I just lost another sweet sweet deal to the bank rehabbing it (F&$#). Would have had 60K+ return. It was a 5 year old home, and a mold disaster. I had it on radar before sheriff sale, was set with listing agent on the BPO and offering for the day it listed (very rare to have them in agreement on a good price) because this place was ugly, I mean U-U-U-ugly, but awesome. now just before listing, bank pulled the cord, said there gonna cash this one in.

    Not sure how to adjust to this..........

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  • Nathan Emmert
    Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
    14y
    Originally posted by James Hamling:
    Ok, so it looks like a few of us are on the "front lines" of this issue here, and it's kind of like the first time a tank rolled on the field in WWI, I'm just a sitting in my trench stuck on stupid staring at this un stopable thing wondering "what the frack do I do now???".

    So, anyone got any ideas how to turn this into an opportunity?

    I have the feeling you already have an angle Jason, but in my area, found out about this at the beginning because the banks are using my suppliers for much of it (kind of flattering, says I networked my rehab people well). But I am not seeing where it benefits me.

    I just lost another sweet sweet deal to the bank rehabbing it (F&$#). Would have had 60K+ return. It was a 5 year old home, and a mold disaster. I had it on radar before sheriff sale, was set with listing agent on the BPO and offering for the day it listed (very rare to have them in agreement on a good price) because this place was ugly, I mean U-U-U-ugly, but awesome. now just before listing, bank pulled the cord, said there gonna cash this one in.

    Not sure how to adjust to this..........

    Banks need PMs. If you've got the network and the background... why not do the rehab for the bank for some profit. Might not be what you were generating before but being you'll essentially be at 0 risk, what the heck? It's more of a job than an investment but if times are lean, that might help while you scope out other opportunities.

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  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    14y

    Seems like this combined with the government plan to sell Freddie/Fannie foreclosures REOs (many being SFHs) in bulk to huge investors/corporations that will supposedly rent them out, means big business/government is taking over what once was the domain of the "mom and pop" investor. This article is pretty interesting:

    http://www.marketwatch.com/story/investors-eagerly-eye-us-foreclosure-rental-plan-2012-01-24?reflink=MW_news_stmp

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  • Nathan Emmert
    Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
    14y
    Originally posted by Joseph M:
    Seems like this combined with the government plan to sell Freddie/Fannie foreclosures REOs (many being SFHs) in bulk to huge investors/corporations that will supposedly rent them out, means big business/government is taking over what once was the domain of the "mom and pop" investor. This article is pretty interesting:

    http://www.marketwatch.com/story/investors-eagerly-eye-us-foreclosure-rental-plan-2012-01-24?reflink=MW_news_stmp

    Vertical integration is all it is. No different than someone like Walmart taking over their own warehouses, being responsible for their own trucks/deliveries, or even offering some of their own products. As companies grow they look to network into the cottage industries around them.

    Flipping/Renovation is a cottage industry of real estate sales that has been heavily bolstered by REOs. It's a natural evolution as banks look to improve their bottom lines to move into those areas which they can.

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  • Tim G.
    Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    14y

    I've seen it with a few properties in my area and it didn't seem to work out well. Around here the standard is granite, stainless appliances and wood floors. They are going in with cheap white appliances, carpet and the cheap counter tops. What happens, after it being on the market FOREVER is a rehabber grabs it, swaps out those three items, makes the yard a little nicer and kills it.

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  • Tracey Williams
    Investor · Columbus , OH · Member since 2010 · 311 posts · 51 votes
    14y

    Banks are fixing like 25% of houses in my area, mostly those in good neighborhood. We are getting less REO and listing prices are close to retail price too.

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  • Raymond B.
    FL · Member since 2009 · 2k+ posts · 357 votes
    14y

    Joseph M:
    Linked for you:

    http://www.marketwatch.com/story/investors-eagerly-eye-us-foreclosure-rental-plan-2012-01-24?reflink=MW_news_stmp

    Raymond

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  • Luis A.
    Real Estate Investor · Atlanta, GA · Member since 2009 · 339 posts · 126 votes
    14y

    This is not new. I have been seeing this for a couple of years now. I mostly observed it on Fannie/Freddie REO.

    Like someone else mentioned I had seen carpet/paint rehab. No major upgrades, new kitchens, new flooring or anything like that. I am still running into plenty of REO's with a blue tarp on the rook, missing appliances, etc.

    In the case of mold, yes, they will do a mild "remediation" meaning they will take out all the moldy drywall and ceiling tiles, that's it...

    It totally makes sense to do some fixing up of the houses as obviously a clean house will sell a lot quicker and for more money. But the inventory is so huge I don't see how they are going to rehab them all.

    What I have seen here is one particular county, Gwinnett, actually had a program to rehab homes in particular areas of the county with very high foreclosure density. Dekalb county too. And yes they will do full rehabs and then list at market price. But it is in select areas.

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    14y

    Banks and GSEs (Fannie/Freddie), collectively 'financial institutions' (FIs) manage their REO inventory to minimize costs and maximize sales proceeds. I agree with Luis that this practice isn't new. I've been aware of it since 2004... but only with low repair dollars spent. In other words clean up and paint up to sell, not rehab. What is new are some local government enforcement efforts regarding FI property and (related) the extent of some of the FI repairs.

    Directly from Fannie Mae's (Federal National Mortgage Association) latest Form 10-Q is this: "Neighborhood stabilization is a core principle in our approach to managing our REO inventory. In the first nine months of 2011, we completed repairs to approximately 69,300 properties sold from our single-family REO inventory, at an average cost of $6,122 per property. Repairing REO properties increases sales to owner occupants and increases financing options for REO buyers." The wording used in this document doesn't exist in other SEC filings prior to the end of 2011Q3.

    So in select areas on select properties, FIs are initiating repairs and ultimately saving taxpayer dollars... at the "expense" of an investor's next rehab project.

    1Reply
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