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Buying REO property, for Real Estate Investors
As the credit crunch tightens and real estate inventory piles up, opportunities abound for savvy investors who are prepared and have cash. Here’s how to find em and close em.
REO – Real Estate Owned, term used for homes and properties taken back by banks and lenders after foreclosure.
Banks & Lenders take back properties by foreclosure and usually list them with several local real estate brokers. They can be found on your local MLS and as well as the lenders REO online database.
How to Find REOs in Your Area
Unless you have $10M plus, the bankers won’t talk to you. Your best course of action is to talk to the local realtors/brokers who have the most listings (sellers agents with the most REO listings). These realtors can also provide you with other MLS listings, CMAs, market conditions and keep you abreast of good deals.
Q: How do you find one of these brokers/realtors?
A: Visit the online REO databases of the major lenders in your area, search the zip codes you’re interested in, and look at the listings and the listing agents. Find the lenders with the most listings in your area and the agents with the most listings in your zip code. These are the agents you want to contact.
Here is a Directory of all major lenders in the US, and links to their REO databases:
Talk to the listing agents, tell them what you’re interested in, listen to their advice, and remember they make money when you buy one of their listings, regardless if it is a bad deal, so do your own due diligence.
If you are a serious real estate investor, you know how to value a property, estimate repairs, inspect properties, plan an exit strategy, and make offers. You have identified zip codes that you are interested in and track those markets. In addition, you have cold hard cash and/or excellent credit. At a minimum you should plan on putting at least 20% cash down and reserves to cover carrying costs and fix-up. If you are an all cash buyer better still. Get pre-qualified at a bank for a conventional loan.
Making the Offer
When making offers, you will get better results if you look like a serious qualified buyer, with no contract contingencies.
If you are a cash buyer, use it to your advantage, make cash offers and promise a fast closing, not contingent on financing. If you have good credit, steady verifiable income and a health deposit, use conventional financing and get pre-qualified. Hard Money and Private lenders, although more expensive than bank financing may also be valuable tools, allowing you to close faster, and if you will not be holding the properties for long, may be cost effective as well. Most private/hard money loans don’t show up on your credit report, where a conventional almost always will show, and getting a new loan on your credit report always hammers your credit score in the short term. If your deal is too thin to accommodate the added expense of a hard money loan, it is probably too thin period. If your plan is to buy with cash or Hard Money Loans and later refinance to a better rate, talk to a local mortgage broker or bank about seasoning requirements. Refinancing may make more sense if you are acquiring rental property or will be selling with lease/option, rent to own, land contract or wrap mortgage.
When you approach your lender have a full file of docs including: copy of credit report, 1003 standard loan application, copy of W2 income statements (or 1099s for self employed), bank statements, and summaries of your successful real estate deals you have done.
A Few Other REO Buying Tips
Good Luck and happy hunting.
About the author:
James MacArthur is broker/lender licensed by the California Dept of Real Estate. We are Private and Hard Money Lenders in CA, and work with real estate investors.