The Chupacabra - Does it exist?

Question

Just like the Chupacabra, I'm hoping someone can verify that the following exists:

Will a bank offer "seller/private financing" on Multi-Family REO product, like 100+ unit apartment complexes?

Are banks pressured to offer financing themselves if the property has been on their books and on the market for too long?  Banks aren't in the business of owning/running Investment Real Estate projects, right?

I've heard of this scenario taking place on larger projects that require a lot of $ in repairs, with no buyers presenting themselves for up to 1.5 to 2 years.  I've also heard that the bank will extend up to 100% financing for the purchase price, so capital can be used for repairs and rebranding.

Has anyone "seen" one of these deals first-hand?

Should this type of scenario exist, who would be the correct person to build a relationship with?  Someone at a commericial bank?  REO broker?

Gotta run... off to a snipe hunt....     :lol:

Greg G. · Answer

Spoiler Alert!

If you are a boy scout, please don't read any further:

A snipe hunt is a rite of passage for a young man's first camping trip.  Basically the older guys equip the newbies with a trash bag and a stick.  The young guys are briefed that a snipe is a pretty mean animal that lives in the trees.  You hunt snipe by hitting your stick on the side of the tree while holding your garbage bag at the base, so the snipe will run out of the tree and into your bag.  The newbies are pretty petrified at this point, (ask me how I know, this was a couple decades ago for me!).  The newbies fall in line behind a leader that carries that groups flashlight and leads them deep into the forest.  You make it to a tree, put down the bag, start hitting the tree, and the leader cuts out the light, ruffles the garbage bags, yells bloody murder, and runs back to camp....  then you wait to see which newbie makes it back to the camp last.  Lots of fun!

Jimmy, keep us posted on details as you walk thru the deal.

Account Closed · Answer

what they actually hide in the trees, damn.  when i was a kid they told me they lived in the high grass no wonder I never caught any.

Bill Gulley · Answer

Sorry, one year, at noon! LOL (12 months)

Bill Gulley · Answer

Hi, no, no, no. Banks will begin writing down book values of properties after 12. There is a trickle through effect in bank accounting a capital reserves that motivate banks to get rid of ORE/REOs.

It is consider poor lending practice to finance any property that they have held. There may be reasons that cloud the property as to why a borrower choose not to pay on a building or a car or whatever it is. It also presents some accounting problems. A property that was booked at $100,000 six months ago and then could come back as collateral at a different amount will raise flags. Was the first loan made correctly and at value, or is it the second loan which is current and correct? Why would they take the same property at two different levels of collateral? It can raise some issues. Banks don't want Examiners scratching their heads!

However, in some small rural banks, sometimes there is no choice. In a town of 900 with a branch bank location, what is the market for the one and only Pizza Pen?  I have seen banks take properties and end up making them branch locations or record storage buildings!

Hunting for deals that will be offered by a lender and financed by them will be alot like snipe hunting, IMO! Bill

Jimmy H. · Answer

First off, please enlighten me as to what a snipe hunt is.

I do believe these deals exist, I have not pulled it off yet myself but I have a good prospect in the area that I am working on. I think this presents one the greatest opportunities in terms of REO's right now. It takes cash which severely limits the market of buyers, add to that that supply is greater than ever and you have opportunity. I am pretty certain that banks must write-off the entire amount after 5 years, but having something on the books for even 2 years is a bit absurd. I'll keep you posted as to how my current deal pans out.

Account Closed · Answer

You probably never caught one because you have to call "here, snipe, snipe." as you walk around in the dark.

Around here they hide in the sage brush. Probably afraid to live in the trees because Sasquatch might eat them. You sure wouldn't want to be wandering around in the forest at night beating on the trees and attracting attention to yourself.

Account Closed · Answer

The Sasquatch do manage to hide and protect the young snipe around here.  It takes lots of practice in the dark to catch the snipe.

Jimmy H. · Answer

Do you know the time frame, or timeline of the so called "trickle effect". It begins after 12 months and i'm pretty certain it MUST be written completely off after 5 years. Most banks don't hold beyond 2. And Bill is right, banks are reluctant, your probly better of going to another bank and finding some young hot shot lender to try to finance it. But in certain situations banks will, and that is when a heck of a deal can be struck

Greg G. · Answer

Bill,

Thanks for the insight.  That makes sense.

You mentioned banks start writing down values after 12 in your reply.  Are you saying after midnight, lunch time, 12 months?  :)

Greg G. · Answer

Who would know about these types of deals and be a source of leads?

As an add-on to my original post, the investor from BP that mentioned these types of scenario's said that his deals tend to be in smaller metropolitan area's on the outskirts of major metropolitan areas.  I suppose the large markets like Houston will get a lot of attention from buyers, where as smaller markets like Beaumont, outside of Houston, will get less attention from buyers.

So are these deals real?  Or are they imaginary like the Chupacabra and the Snipe?

The Chupacabra - Does it exist?

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