I have 5 tips for you when it comes to wholesaling REO properties. REO stands for real estate owned by the bank just in case you are wondering.
Some also call it bank-owned properties.
Is this even possible these days or its a thing of the past when no one was paying attention?
2004… Right about the time that I was in my master’s program in Engineering management,
I started attracting lots of ideas on how I could change the world.
I ended up at quite a few seminars, one of them being a 1st time home buyers seminar at East Orange New Jersey.
Of course like everyone else, I thought I was going to become the next millionaire on the block by becoming a landlord.
So the first house I went to look at was actually an REO bank owned property in Belleville New jersey; it needed some cosmetic work.
My intentions weren’t in flipping or wholesaling the property. It was more so in a little work and then becoming a landlord.
But I quickly discovered that being a landlord wasn’t as simple as the seminar made it seem and then I mastered wholesaling first.
So allow me to share these 5 tips with you.
On my next video, I share with you how I went on to create $3,058,000 in transactions by the 24th month and the mistakes I made.
So make sure that all the buttons around this video that will ensure that you are notified are punched in the face.
My name is OLA and I am the author of 2 books…
REAL ESTATE MONEY SECRETS and SMART REAL ESTATE WHOLESALING
…which you can download for free at www.SmartRealEstateWholesaling.com
I am also the creator of myEmpirePRO and the 11 days challenge quick start guide which you can find at:
Tip #5 – Let’s First Define REO or Bank Owned Properties
PREVIOUS POST: 📍 Pre-Foreclosure Scripts – 5 Questions + 1 POWER Question
As the name says, these are real estate properties owned by a bank; they are assets on their books. I know what you are thinking?
So Banks Own Real Estate?
But owning a property does become a necessity for banks that lend money towards purchasing properties or use real estate as collateral for a mortgage loan.
When such borrowers default on the loans, the bank is forced to exercise their right to foreclose on such property.
The process of foreclosure starts with a lis pendis (a pending legal action) with the courts; this stage is called pre-foreclosure.
After that, they attempt to auction the property and that often leads nowhere except buying the property back onto their books from the auction sheriff.
Tip #4 – Exit Strategy for Wholesaling REO Properties
If all you are doing is buying an REO property outright to fix and flip or to rent out as a landlord, you don’t have to worry about this tip.
But if your exit strategy is wholesaling, there are a few things you should know and prepare for.
If you have an on-going relationship with an end buyer that counts on you to continue to find deals for them,
it’s better for you to have them buy it straight from the bank on their name and get your finders’ fees on the side.
Your typical wholesale assignment contract and fees may not be tolerated by the bank as they have already lost so much money in the foreclosure process and don’t want to see any non-conventional fees being paid-out on the closing statements.
If you’d rather protect yourself and get paid from the closing table in black and white,
you will need investor friendly title companies such as Chicago Title and
Google them; I think they are national. You can also ask at your local REiA for recommendations.
These title companies will recognize one of two different deal structure that you will need which are:
- LLC Transfer which involves forming an LLC entity for the sole purpose of locking the property under purchase contract and transferring 100% of shares in the LLC to the end buyer after closing. That makes them the owner of the property which is owned by the LLC.
- Double closing which involves buying the property first and funding it using transactional funding at the cost of 1-2 points and selling it right away on the same closing table to the end-buyer. On the next video, I will talk more about transactional funding.
With LLC transfer, you will need to find an end cash buyer investor who is comfortable already with this strategy. That reduces the options in your pool.
Ultimately if you lock in a really great deal, the investors will do anything to get the deal because great deals are obviously not easy to come by.
And with double closing, you can’t use it if there are clauses in the offer acceptance that restricts title chains.
Sometimes, they will add restrictions that prevent transfer of title for 90 days or so.
You will be left with wholetail (that’s wholesale + retail) which means you need to buy and hold it for a while with that option.
That would need your personal funding resources.
Contrary to popular beliefs, you can still get away legally with these strategies in many states but I also recommend using an attorney for these processes to protect yourself.
The fact remains that they do get away with a lot more than you can as a regular individual when it comes to legal matters…
right or wrong.
Tip #3 – LLC Names
When forming LLC names for LLC transfers, people tend to use the street address of the property especially with the expectation that they will be selling the shares.
Example: 123 Main Street LLC
Try to add the city and 3 additional characters to these LLC names to avoid title clouds from other people that may have used similar addresses for LLC.
It can delay closings unnecessarily if any of those other similar LLCs have judgements against them.
Instead try an example like this…. 123 Main St By FIR LLC.
And be sure to dissolve all LLC’s you never sold to avoid them lingering around on your name or your records.
Tip #2 – 8 Websites to Find REO Properties
You can check out…
Since these are usually listings with agents and these websites feed from many local MLS anyway.
If you want to see foreclosures, foreclosed homes and REOs exclusively, check out….
Set up free alerts wherever you have the opportunities to do so on these websites and be the first to see when they come on.
Start building a relationship with the agents you see repeatedly and their team as other opportunities will come from it.
Tip #1 – It’s All About Relationships
The most important thing in this process like most other processes is the relationship you build with real estate agents and here is why.
Foreclosure is a nightmare for the lenders as the intention is to flip money for more money and not property management of foreclosed properties.
When these properties are foreclosed on and bought back by the banks,
they are turned over to asset managers for liquidation.
What ends up happening is that they hire licensed real estate agents to evaluate,
value and list these usually distressed REO properties for sale.
They do this via a BPO; a broker’s price opinion. Though a professional opinion, it’s still an opinion that you can absolutely influence with your relationship.
Just like in shortsale which is what the bank uses to liquidate at a pre-foreclosure stage to save money,
these properties are considered non-performing assets.
They have lost a lot of money already but not really because a bank lending operation is prepared for these situations.
So when you find ways to add value to these agents and build a relationship beyond just one deal, REO properties become a great opportunity.
Conclusion & Main Lesson
HAVE YOU SEEN THIS: More Video on our YouTube Channel
At this point, the lender just wants the market value of the property and they will accept as low as 90% of whatever that is.
So if you want to wholesale REO properties, your official access points are licensed real estate agents; especially those who specialize in REOs.
Therefore you can see these homes on websites such as Zillow, Redfin and others because they feed from local MLS as well.
Just keep in mind that the agents typically don’t make that much in commissions from REO properties
so they count on volume and hopefully work with investors that already know what they are doing.
They may not be able tolerate a lot of petty little stupid questions. But everything is negotiable when you build a solid relationship over time with these agents.
I cover negotiation in more detail in this video on the screen.