Perhaps, though a long shot.. with an reo purchase (although I know they prefer cash) I could offer the selling bank a high enough interest rate that will allow it to recoup the money lost due to the original foreclosure proceeding. Said differently, if a bank was going to make 100k in interest on X property (had it not have to foreclose), I could have the bank charge me a high enough interest rate that would allow it to make up for that loss of interest revenue, due to the foreclosure, plus the amount it would make on the new loan over 15 - 30 years on that same property. Perhaps in such a scenario my rate would be 7% rather than the average prime of 3.25% that exists now. Could that help the banks books? Just a crazy thought BP, so I figured what better place to converse about it...I mean this is the creative financing forum..lol
I wouldn't dismiss the idea altogether. I'm not suggesting the details of the idea are on the mark. But don't assume that you can't do some horse trading with a bank on one of theiir REOs. Larger banks, it would be a no. But smaller banks will do whats in their best interest and they might be talked into a deal if the numbers make sense.
But here's the thing. I think you can negotiate with a bank on the rate. I did it about a year and a half ago on a couple of lots the bank was sitting on. Although I negotiated the rate down. Not sure what they would make out of someone negotiating it up. :-)
I guess a better question to ask would be are you looking to get the bank to lend you money because you don't qualify for regular financing? Are you looking to agree to pay a higher interest rate in exchange for the bank giving you a better price on the deal?
What I would say is that I think a small, local bank would be more apt to be creative in financing a property currently on their books. But I think you'd have to buy the property via a commercial loan into an entity - in a deal that makes it easier for them to foreclose.
One thing they wouldn't want to risk is spending another year or two having to foreclose on the thing again. As an investment property with a commercial loan, the foreclosure is far quicker/easier.
But one way to get creative is on the down payment. When I bought those bank owned lots, I looked at what things a bank could negotiate on.
3. Down payment
4. Amortization period
And each of those, I figured, would be flexible in some way that I could make the deal work. For me, I ended up negotiating the down payment so that I only had to put down 15% for the purchase with another 15% due in a year. That basically helped limit my initial outlay for the purchase. I beat them up on the price and rate as best I could. And then, once I thought they were done, I asked them to extend the amortization period from 20 to 25 years.
At the end of the day, that isn't really costing them any money. If anything, it allows them to make more money off the loan in interest. But it helped lower my payments.
So, don't think there isn't some room with a local bank to negotiate on their bank owned stuff. Maybe something thats been sitting there for 4 or 5 months and they simply want to get rid of but they're somehow locked on getting a certain price.
Maybe you agree to pay that price provided they let you have it for a lower down payment or a split down payment. Or maybe they can amortize the loan over a 25 year period instead to help make the cash flow numbers at the higher price.
The key is there are all sorts of ways to play with the terms of a loan so you as an investor can make the numbers work. But I do believe you'll have to stick with the local/small banks in order to get them to even listen to any offers like that.
There is a strong incentive for them to do a deal like that though.
1) They remove a bad loan off their books. I believe that when they take a house back, they have to set aside some multiple of the loan amount or home amount until it sells. So something like 7 times the value or initial loan amount? Thats money that has to sit on the sidelines that can't be earned.
2) They don't have to worry about maintenance, taxes and insurance. Putting a stop to the ongoing expenses has some value to them too. They don't really want to spend any more money on the bad loan than they already have.
3) They don't have to worry about the house falling further into disrepair and lowering the value of their asset any further.
The only other point I would add to going to a local bank to do something like this - is that a local bank is likely not going to want to give you any kind of investor discount on a property. Typically, local banks are very keyed in on the real estate market in their area and they are going to much less likely to price the house well below market. So getting deals with them is not typically going to be very easy.
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