Wholesaling bank owned reos and foreclosures

12 Replies

Has anyone had any luck closing deals on foreclosed properties or bank owned reos? They all seem to be listed at an outrageous price with huge rehabs needed. My question is, is the 65% rule minus repairs used anymore? Because after that formula is applied now it seems I’m the one with a ridiculous offer and I never get the deal because they are always turned down. The agent I’m working with is also becoming impatient with the high rate of declines. Is this strategy outdated? I also get the feeling that the agents are marketing these foreclosures in a way that cuts out the wholesaler.

Yeah, I don’t see you getting any deals at a 35% discount, before repair costs. You’ll have to find desperate/ignorant sellers and banks are neither one.
What kind of PIF are you showing banks with your offer?

I’m using the pofs from the site cash for my closings. They seem pretty legit. But that’s not the problem it’s my offers. I see I have to go back and reevaluate because no one is biting on the 35% rule anymore I see. If you have anything else to add that would help please do and thanks

Originally posted by @Lonryco Robinson :

I’m using the pofs from the site cash for my closings. They seem pretty legit. But that’s not the problem it’s my offers. I see I have to go back and reevaluate because no one is biting on the 35% rule anymore I see. If you have anything else to add that would help please do and thanks

 one constant about real estate is the market Is not constant.. what you did 5 to 8 years ago you can't do today.

the market Is coming into balance.. and really returning to normal.. it was never a normal market to be able to buy properties at such huge discounts.. 

that all said banks are just like anyone else they want to maximize returns.. and they hire people smarter than me to run analytical analysis on what a market is doing and what the market will bear..   And that is what your running into.. your market has bounced back on long term owners LIKE that .. short term flippers don't..

AS Wayne mentioned off market Hoarder type houses might be best bet in this market right now.. and from my seats in the bleachers we just keep seeing the market getting stronger not weaker..  

I completely agree with @Jay Hinrichs this is the time the market is approaching its peak. To be success at any area of real estate, you must know what the market is doing. Prices are high all over the world right now. Im glad you can realize a lot of the houses now that are REOs are pretty much garbage(high prices and high rehab costs) the reason they list them is because the hedge funds and other big guys dont want them so they pass them off to realtors to list. As Jay stated they want to make money too so their thinking is somebody who is new and or someone who doesnt know what they are doing will buy this junk.....HUD also does the same thing except they are more annoying to deal with.

Its very possible for you to find a rare one that is discounted like that but its not as common as you think.But contacting the sellers directly is definitely your best bet. Good luck.

Agree with most of the previous posts.  Market in a definite upswing in vast majority of metro and CSAs.  Prices are on the up, and everyone wants a piece.  This includes the banks with their REOs.

When you say "wholesale an REO" do you mean assign the contract? I think this is what you mean, and if so, about 95% of banks won't allow this. They have clauses in their contracts which prohibit this. I know for a fact HUD doesnt allow it; they make you use their contract. It contains the lack of assignability verbiage, and you can make major changes to the their sale contract. I once tried striking out a clause, and the asset manager turned it right back around to me stating I had to "just sign" if I wanted the deal.

Yes Dave Rav I’m wholesaling them. I’ve done a few using the double closing method. I was under the impression that since the banks just want to get these homes off their books reos would be a good niche.

Originally posted by @Lonryco Robinson :

Yes Dave Rav I’m wholesaling them. I’ve done a few using the double closing method. I was under the impression that since the banks just want to get these homes off their books reos would be a good niche.

 totally depends on the neighborhood.. if they are war zone low value assets that maybe true.. but for the rest of the inventory that's not the case.. at least in strong competitive markets.

Originally posted by @Lonryco Robinson :

Yes Dave Rav I’m wholesaling them. I’ve done a few using the double closing method. I was under the impression that since the banks just want to get these homes off their books reos would be a good niche.

Lonryco, that’s awesome!  Which banks were willing to play ball?

I mean it seems to me like you get to wholesale OR use an agent... They are competitors and should be mutually exclusive on a deal... They agents goal is to make money, if they are making offers for you at 75% of what its worth... Guess what, they're making 75% of what they could get with a "better" client.

@Dave Rav you are correct in that you cannot Assign these REO deals. However, you CAN double close them. It makes a difference if they are HUD homes or if they are other REOs.

With HUD homes, you can choose the title company for the AB closing. This is crucial because this allows you to choose a title company that will allow a double closing, where both the A to B and B to C close the same day. You use your own funds or Transactional Funding to close the AB, and then pay back those funds when you close the BC later that same day. Your profit is the difference between the B price and the C price, less closing costs and funding fees.

With REOs, the REO asset manager has chosen the title company. Many times these title companies won't allow you to double close. In this case, you have a few options:

1) You can ask if that title company will do same day back to back closings. If so, that is the easiest fix. Make sure that you make clear that there will be two separate closings, and you will be bringing cash to the A-B Closing, and the end buyer will be bringing their own funds to the B-C Closing.

CALIFORNIA ONLY

     a) If the answer is no, go to step 2).

     b) If the answer is Yes, then...

            i) Ask if they require that you disclose to the A Seller and the C Buyer that you are buying the property and reselling it for a profit. If No -- great. If Yes, then...

            ii) Ask if they require that the purchase amount of the A-B contract and the B-C contract be disclosed to the A Seller and the B Buyer. If this is the case, it is best to try to find a title company that will not require that disclosure because it will likely kill the deal.

2) If not, you can offer to pay for the title work they've done and ask that both closings happen at the title company of your choosing. It usually is less costly for you to just pay the title work at the original title company and move both closings over to the title company of your choosing.

3) Lastly, if they won't do that, ask if the B side of the A-B transaction can close at the title company of your choosing. Then, have the B-C side also close at that title company. NOTE: with this type of structure, the funding fee may increase from 2% to 6%. That is why #1 and #2 are preferable choices.

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