What to Wholesale? REO's or FSBO's?

14 Replies

I have read that fsbo's (or vacant properties not listed on mls) are the easiest deals to start out wholesaling with but I started to conclude that reo's are much easier to find since they are all listed. What deals do you have the best success wholesaling with?

I would deal with FSBO's first because dealing with banks for a newbie can be daunting.

I understand the difficulty of these transactions, however my question is which are most profitable? regarding time to find the deal and the amount of potential equity being available.

To get a better undersanding of what I'm asking, What deals are you most successful with as an experienced investor?

Mr Cash,

Your best profit and success rate will be bank REO property.
Easy to find but not easy for someone starting off.

Well let's clarify a little. You are NOT looking for a "FSBO". A For Sale By Owner is a property that is being actively marketed by the seller with a sign in the yard and with different types of marketing. What you are looking for is a motivated seller. Most of the time when you buy from a motivated seller, there will not be a sign in the yard and the seller will not have been doing any public marketing.

Whether the property is vacant or not does not matter, though being vacant always help the seller be more motivated.

Ok comparing REO's versus buying directly from motivated sellers, my experience is that you will get much higher profit margins from buying directly from motivated sellers.

I'm curious, Curt, I thought you said that you only buy REO's and not directly from homeowners, so do you make your statement of REO's being the best profit just because REO's is all you focus on or because you've focused on motivated sellers and they're just not worth it?

I've personally never bought an REO cheap enough to make $20,000 wholesaling it, but I HAVE with a motivated seller's house.

With REO's there is a balancing of value via an open market on the MLS, but with motivated sellers that is not the case. The seller has not contacted 3 different realtors to get BPO's to determine market value. The seller is many times not getting offers from anyone else but you. That allows gives you more control in setting the "market" rate for the house.

Now even though they bring higher profit margins, buying directly from homeowners requires quite a bit more time and money to find the deals. It is a very proactive process to find motivated sellers, and spending thousands of dollars and/or hundreds of hours to find one or two is not an uncommon event. If you are not efficient and effective with your marketing dollar, you can easily spend enough to make the extra profit potential of buying directly from homeowners evaporate.

When you want to find REO's you call a realtor to pull them off the MLS, which costs you $0 and requires a 2 minute conversation on the phone. Yes, it does require that you show proof of funds and, yes, you do need to put earnest money down, and, yes, you do need to negotiate to pick the title company or at least the "courtesy agent" so that you can do a double closing, but other than those three things, wholesaling an REO is no harder or different than wholesaling a property from a homeowner.

So to recap, in my experience,

Buying direct from motivated sellers = more profit potential but more time and/or money to market and find the deals

Buying REO's = less profit margin potential but a significantly less amount of time and money

I normally do 80-90% of my deals buying directly from motivated sellers and 10-20% are from REO's or anything listed. From what I've seen it seems like larger markets will have a large enough base of REO's that wholesalers can make a decent living off of just REO's, but in a smaller market like mine (under 200K population) there are just not enough REO deals to sustain yourself on.

I think Ryan has made some excellent remarks here and I agree. REO investing is not difficult for a newbie or seasoned investor, getting the right contacts and delas takes work and effort.
Finding motivated private sellers takes much more marketing and a lot of hard work, but as he stated, can provide high profit margins as you are dealing with someone who is not only motivated, but most often, not as financially savvy as a bank and therefore you can negotiate better price points and even most importantly, BETTER TERMS. You have less problems wholesaling this because you don't have to worry about the "no assignment clause" and double closing efforts/costs. You can also arrange a longer escrow timeframe giving you more time to locate a buyer with motivated private sellers.

Will, that's another great point.

The better terms that you can negotiate with a motivated seller can make the difference in finding a buyer in time or not.

Having the extra time for the closing makes a huge difference, and on top of that assigning a propery versus double closing it will save anywhere from $200 on the absolute low side to $1,000 or more on the high side.

Thanks for you guy's quick and thorough responses, It was really helpful.

If I may, I have another question. I have spent money on bandit signs only to have them be taken down by the city without gaining one lead from them. I have heard of people doing 1,000's of mailers to absentee owners and gaining 1 or two leads.

My question is, what are some tried and true methods of marketing that give you enough bang for your buck?

I know that marketing can be expensive and I don't mind spending money I just don't want to end up at a dead end. Ryan, how do you recieve 85% of your deals from motivated sellers without spending too much time and money?

Many can attest that going for Flat Rate MLS Listing is an excellent choice. You're very first objective is to find not only one, two, or three buyers but many prospective buyers as possible. This is what MLS listing can give you as it exposes your property to a number of realtors all over the country that have buyers who are searching for a property similar to what you are selling.

Another plus factor is that if you availed of MLS listing, your property gets to appear in the website realtor.com, a site that has a very huge traffic.

Basically, more exposure, the more chances you have of selling your property in the quickest possible time.

I understand the exposure of the MLS but I would completely disagree with listing your Wholesale deals on the MLS. While there are lots of buyers nationwide looking on the MLS, you will not find the type of buyers you are looking for. In this market your more likely to find first time home buyers with FHA financing meaning you CAN'T sell to them because of seasoning requirements.

No offense to Kristine, I'm sure her comments have good intentions but I don't think they fit with this situation.

Jeff

I forgot to also mention that along with a Realtor and the MLS comes the commission that you'll be paying to the Realtor. No idea what the cost of the MLS listing is but I'm sure there is another fee for it. That is money that should be in your pocket.

Realtor's can be a big help, just not when a Wholesaler is trying to sell a property. Line up your buyers first and you should have no problems selling your deals.

Jeff

Thanks for your responses however my question was refering to finding motivated sellers to buy property from.

Originally posted by @Lynn Dickerson:

Lynn, I recently took advice and went to ListSource and put in the following parameters and received a beautiful direct marketing list:

I put in the county or counties I want to buy in. 

I choose absentee owners.

I choose :In Tax default

I choose: Has at least 20% equity.

I paid $53 for 291 names, addresses, etc. I only sent 55 of those a post card on my first mailing and I have had four responses, one of which I just put an offer on. 

I'm sure you can see how these lists pay for themselves. Best of luck to you!

i think we forgot that some bank owned property has stipulations about selling right away, or they have issues with assignment.

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