Property Management for Bank Owned Real Estate

5 Replies

Pros and Cons of managing properties that the banks are sitting on?

Philip,

  I actually still have an ongoing management agreement with City National Bank.  Any time that a property is foreclosed on with tenants they send them over to me.  Because of the in and out I charge a larger than normal commission of 12% management fee.  The reason why is I have a sales agent that is trying to sell the house as fast as they get it and I never know how long I am going to have a property before it is sold.  It can be quite challenging because when the properties are foreclosed on that us usually because owners have neglected the properties for so long, and the tenants are usually living in unbearable conditions.  I literally had a lady tell me that she hadn't had hot water in over 4 months.  I also had another property covered in mold, my recommendation to the bank is to try to move the tenant before she started getting sick from the mold and sell the property as is.  

It is all about negotiation, make sure that you are definitely making money out of it.  

Lisa,

Appreciate the detailed response. Thats definitely interesting. How does the bank typically react to renovations? I realize that selling as is, quickly, is ideal for them. But what if you have a proposed plan to dump a few thousand dollars into it to make it worth a significant amount more? Im assuming it depends on the plan and the bank, right?

Sorry for the slow delay I didn't realize that you had posted a question to me.  

What I do with City National Bank, all the Rent that I collect is my Funds to work with for any repairs or maintenance. Since that bank is in the foreclosure process they have me hold all the funds and wait until more properties come in. Off the top of my head I have about 6K sitting in my escrow account now for any large repairs or small ones that need to be done. It is a very wonderful relationship for the bank because they don't have the nightmare of managing the unit or worrying about did the grass get mowed, or did the repairs get don. The bank loves the fact that no one is coming to them screaming about getting paid for services to an REO property, and they don't have the accounting software to handle payment for repairs and maintenance. All they tell me is when it goes to closing, I send a letter to the new tenants that thee property has sold and to wait from instructions as for payment from the new owner.

When you have REO foreclosed properties that are tenant occupied, you have to remember that a lot of the times the reason why the owner's are in foreclosure is because the owners have been missing rent payments from tenants, or the owners are slumlords and used the rental income on something other than the property.

 I have walked in to one property in the middle of winter here I believe the high was around 20 degrees that day, and apparently  the owner told the tenants he was installing a new package unit prior to the foreclosure, and pulled off the unit leaving the giant opening to the outside where the cold air was running through the duct work through the entire house.  The tenants were using space heaters and covering the ducts, but their electric bill was over $400 a month.  

I got a phone call from one lady after she contacted the bank because she didn't know who to call she had not had hot water in 4 months.  Apparently the thermocouple went out and the owner keep telling her the part was on order.

My favorite one was I walked in to one property and I found it very odd that the front door was unlocked in a very shady side of town.  I started looking around and someone had enclosed the arch ways and added a door between the main entrance/ hallway and the living room, but what fought my eye is that on that make shift door there was a key lock on it, and it was locked.  I continued down the hallway and found that there was another closed off area with a doorway and a lock door.  I found the kitchen and I just had to double take because I thought i was seeing something wrong, but the key insert portion of the door know in the kitchen was facing in the kitchen.  It wasn't locked and when I opened it I woke up the person that was living in the Laundry room and he told me he Paid his $100 for the month of rent and I couldn't be in his room....  it was at that point I realized that the person on the lease was only supposed to be paying 800 a month for a 3br house, she charged rent to all the other rooms in the house, including the living room and dining room which she turned in to bedrooms.  Talk about fun trying to evict them,  when I scheduled the eviction I explained the situation and they sent a crew of 4 deputies over which had to remove all the occupants that were not on the lease..

Residential it's all over the board how banks handle assets. If it's a large bank they might use an external company to handle the volume and outsource it all. Local banks tend to do things in house.

In commercial you can a have receivership appointed and it's more involved than residential.

I don't do either as I like transacting and my own investing and that's it.

Originally posted by @Philip Cali:

Lisa,

Appreciate the detailed response. Thats definitely interesting. How does the bank typically react to renovations? I realize that selling as is, quickly, is ideal for them. But what if you have a proposed plan to dump a few thousand dollars into it to make it worth a significant amount more? Im assuming it depends on the plan and the bank, right?

 Most of the time the banks just want to fix them up to be habitable enough for the current tenants and package it as a investment property with paying tenant.  We don't flip houses for the bank, if a property is beyond livable, I find a different property that the family would be agreeable to move in to and let the bank sell it as is with no repairs.  

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