New wholesaler, stay away from REO's?

Question

Would you guys recommend to stay away from wholesaling REO properties till some experience is to be had? The reason I ask this is that from my understanding is that some banks have nonassignable contracts, thus need to be a bit creative to get this types of deals done. Please correct me if im wrong. Also this type of deals  require proof of funds or pre-approval letter from private lender, which confuses me as to who would need to provide this the wholesaler or the buyer of the property? As a new wholesaler and a small network, private lenders would be somewhat hesistant to work with a new wholesaler I would imagine? This is from all of my understanding thus far and could be way off base, but would like help me understand this further.

Eric M. · Answer

The reason this method is rarely mentioned as a wholesale technique is because it is not wholesaling, buying a property for quick resale is flipping.

Bryan L. · Answer

You know, there are many, many, many ways to wholesale a property.  It's rarely mentioned here on BP, but one method is to actually buy the thing, and then sell it.  I normally don't wholesale, but all 3 of my wholesale deals were completed this way.

Jon Holdman · Answer

If you're writing cash offers on REOs you will need proof of funds.  That means a bank statement with the same name as on the offer.  If you have a pre-approval you can write a financed offer.   If that pre-approval is from a private lender you'll probably have to provide their bank statements, too.

REO contracts are indeed rarely assignable.  You can do a double close, but you'll probably need a transactional lender.  That increases your costs.  Some banks will put in restrictions that prevent you from transferring the property for some period of time.

The bigger issue is that banks don't usually come off their listing price by much.  So, if you get a slight discount, then add your markup you're back to the price it had on the MLS.  Investors who are buying have already seen the property at that price.  REOs that have been on the market for months and months may get offers accepted at more significant discounts.

Not saying its impossible to wholesale REOs.  Some folks do make it work.  But better to do your own marketing to find sellers.

Bryan L. · Answer

@Pedro Oliva - Wholesalers can provide a valuable service to rehabbers and landlords by finding good deals for them.  But, if you were in my market, I would tell you to leave the REOs alone.  That's because they are listed on the MLS, and I am a combo investor/Realtor so I already have MLS access.  And, after doing this for about 10 years, I can find my own deals on the MLS and can probably get them at better prices than you anyway (especially on REOs).

Bryan L. · Answer

Semantics maybe, but I consider it wholesaling.  If I buy a house and do nothing to it (no rehab) and then sell it, I consider it wholesaling.  Yes, it's a sub-category of flipping - just like buy/rehab/retail is a sub-category of flipping.  My point though, is that one always has the option to actually buy a house (whether it be an REO or whatever), and then sell it to someone else for a profit without doing a rehab.  If the first buyer doesn't have the cash to do so, there are many ways to come up with the money - lines of credit, loans, partners, etc.

Pedro Oliva · Answer

So are reo properties mainly for buy hold and rehab investors?

Robert Williams · Answer

My experience with REOs is very limited, but all of the bank contracts I've seen are not assignable.  The banks want to get their REO property under contract with a buyer who can purchase the property and get it off their books, not with a wholesaler who needs to shop it around to get an eventual buyer.  If you're making them an offer to get under contract, they'll want to see a lender pre-approval letter of proof of funds from you.

Larmon Cummings Jr · Answer

You are right in saying that most banks would require POF or pre-approval letter with your offer @Pedro Oliva . I put in a offer on an REO and they had me submit a POF letter, so this may be the case with most banks. I do not know this for sure, just assuming this due to me having to do it when I put a offer in. It probably wouldn't be a bad thing to hold off on those properties until you get more experience because the banks will tend to be more anal when dealing with you. You have more flexibility when dealing directly with the owner in my opinion.

New wholesaler, stay away from REO's?

Most Popular Reply