How to successfully make an acceptable offer on a REO?

Question

I'm working with buyers who want to purchase REO's at 65% -70% discount. I'm also working with REO agents who list their properties close to retail. I submit my offers. The asset managers reject them. They don't counter. I submit another offer at 80%. They want 95%-100%. They're even saying buyers are paying over retail. The markets I'm trying to invest are Dallas, TX, Palm Beach, FL and Atlanta, GA. It's increasingly difficult to make offers that are acceptable. There is stable and strong economic growth in these cities, according to the MGIC.com market trend analysis. How can I make an offer on these REO properties and still make them attractive for my buyers? Your responses will be greatly appreciated.

Fred T. · Answer

Your "Buyers" already know you are not going to find them the discounts they are asking you to locate with REOs in those markets. Their hope is that if you a ton of work for them, they can re-engineer their strategy based on your FREE efforts.

So....here's an idea...get educated on the market, strategies used by Investors to acquire properties and assemble a winning Business Plan to present to your Buyers based on facts and current market trends. If you KNOW about flexible strategies, what is going on in those markets and why those markets are active, then you become a Valuable Asset instead of a monkey...and real Buyers will be drawn to you based on your knowledge and perceived skill-set. After presenting a factual and well thought out business plan to your Buyer...if they won't change their criteria...simply dump them as a client because all they will do is suck the life right out of you. Tell them you will keep them in mind if something "pops up" but you have to respectfully move on to the more serious buyers to make a living.

It's not unreasonable to fetch properties at a 25-50% discount in the markets you mentioned, but the larger discounts aren't going to come from REOs unless they are in significant disrepair. So unless you know how to locate and negotiate those deeper discounted properties, you won't get anything accomplished.

Real Investors already know and understand what I mentioned above and they know, with the right team in place, that they can find value added opportunities instead of unreasonable discounts and still be able to pull of their ROIs for shorter term strategies or IRRs for longer term strategies. Those markets are part of a new 5yr model that you should know and understand...and you may want to look back to 2009-2012 models to really understand the why behind the 5yr model in play now/

Good Luck!

Guy Gimenez · Answer

@John Meza

You can't force a seller to be motivated. In active markets, REO's will seldom fetch only 65% to 70% of FMV or ARV when the bank can sell them at 95%.  Supply and demand my friend.

Looks like you're fishing in the wrong pond and I'd look at other markets that are not as competitive.

John Meza · Answer

Sorry for the delayed response. Your feedback is greatly appreciated.

Brian Johnson · Answer

I think you are going to work your ass off to find a 65%-70% discount.  You will not find those kind of deals in a hot area very often. Maybe being in the right place at right time with a pocket full of money.  The only chance is if you look in distressed areas.  maybe Detroit you might be able to get them or in rural areas of Kentucky or West Virginia.

I think a tall order would be even 25%- 35% discount in those areas.  Which the 25-35% should be more realistic.

Just a though but maybe look around for estate sales that have multiply properties involved.  You may be able to find the person that buys the estate willing to sell a few of the properties that they don't want to keep.

Wayne Brooks · Answer

Flawed strategy, total waste of time. Let alone, you probably know nothing about the actual neighborhoods you're trying to make offers in.

Crystal Smith · Answer

• You can't make offers on retail listed REO properties & expect them to be accepted.  
• The REO agent's customer is the bank.  Their job- Get the highest price for their customer.  You should consider getting an investor friendly agent, but that doesn't mean an REO agent. 
• Your "buyers" who are supposedly looking for 60 to 70% discount most likely are bidding on the same properties thru their own agents;  so you're competing against you're own customers.  You may want to consider a change in strategy and find your customers discounted off market deals.

Marc M. · Answer

Now this made me LOL.

Richard C. · Answer

Your buyers (have you ever actually sold anything to them) want a 70% discount in a hot market?  Ask them if you should obtain an exclusive contract on the moon while you are at it.

How to successfully make an acceptable offer on a REO?

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