I look to acquire bank owned properites but I keep running into the same hurdle. I look to rehab properties so i usually wait until the property is listed at about 75% of the ARV of the home before I place an offer. I walk the property come up with a number that it will take to bring the property up to market value. I then make my offer at (List- Improvements). So essentially the seller is paying for the improvements. However 95% of my offers get the follow up of " There are number of other offers on the property therefore please submit your highest and best offer" So far I have never increased my offer. Do you guys think there really are other offers and do you guys typically increase your offer?
You’re probably in the same boat as me. I’m a beginner and some things came to light as I searched for a good REO. First, you need good “inside contacts” What I mean is that you need a close relationship with a realtor who can get you leads before they hit the MLS. By the time they are advertised, they are close to market value or junk. The good ones already have an offers on it before it hits the listing.
I just got a succesful bid on a HUD house today. Before that, I got outbid on 1. The same day another was listed, it had 6 bids on it. Another appeared several days later, already with a contingency. I looked at a house on a Saturday and the realtor told me that because it had no offers, he was going to suggest to the bank that they lower the price. Wednesday, it happened and they lowered the price about 35%. I went back about 3PM that day to take a second look and wouldn’t you know another realtor was there already and another one had been there previously that day.
What I learned that if the real gems hit the MLS, it’s too late or you’ll pay close to market.
Yes, my cases all of the homes had legitamate offers and are off the market. There are other ways to get REO’s but I’m not experienced enough to explain how. REO’s on the MLS is a game. Just my 2 cents
I
I think the key here is to work the the numbers. If they work and you can still get positive cashflow, then stick with that offer. Let the true and actual numbers be your guide. There will always be deals. I think the banks could be even more flooded with REO’s in the future. Don’t raise your offer just to make a deal. It has to make sense financially from day one. It’s very easy to rationaize and talk yourself into thinking the costs won’t be as much or the ARV will be higher, etc…
look to acquire bank owned properites but I keep running into the same hurdle.
Why do you want to acquire “bank owned properties” as opposed to any other property that is for sale. Buy just looking at one type of property, you are really cutting down on the number of available deals.
Instead of looking to acquire “bank owned properties”, I would suggest looking to acquire properties that will meet your criteria. In addition to bank owned, you should be looking at any other property that meets your criteria and any other seller type that is DESPERATE. I’ve bought properties from desperate landlords; desperate homeowners; through realtors; REOs; from sheriff sales; through other investors at my REIA; from estate auctions; through personal contacts, etc, etc, etc. You’ll find a lot more deals if you aren’t so limited in your approach.
Good Luck,
Mike
Thanks for the helpful advice.
The reason why I have chosen to target REO properties more than other opportunities is because I working in Southwest Ohio. We have one of if not the top foreclosure rate in the country. I just one county alone 90-100 properties a week are going to sherrif sale. I have to believe that with the banks taking in all this inventory they have to starting accepting greater losses simply because of the carrying costs associated with the properties.
I was also talking with a partner of mine and he was saying that the banks have regulations on the amount of Real Estate they are allowed to have in their portfolio. Once they start to become to heavily weighted in the Real Estate industry they will be forced by regulators to rebalance their portfolio. This seemed to make sense to me, but maybe my partner doesn’t know what he is talking about. Has anyone else been hearing things like this?
phlemboy is right. I run the numbers and I want every house I make an offer on very badly at the price I offer. I don’t want it for a penny more than it will meet my criteria for. I offer what I need to get it for. I have had this happen on a house that had some upside and I upped my offer. I got the house and made money on it but I didn’t offer more than the house would support.
Cincy,
Why don’t you try to buy these houses at the auction before they get to the MLS. I’ve never had much luck dealing with the banks. In my area for the most part, if nobody buys it at the auction, there’s not much equity.
Bax
In my experience the majority of homes that get listed by banks on the MLS are houses they are BURIED in.
These homes sold/mortgaged for let’s say $250,000 (in my area) and are now worth $175,000. The bank is ALREADY taking a beating on them and they DO NOT want to give them away. Anything with any equity in it is LONG GONE before it gets to foreclosure. These are purchased by the Pro’s. They work in teams, they go to the county court houses every week and get the pre-foreclosure filings. A quick title search will tell them how much equity is in the home. If that owner has equity they sit down with them and lay out a price that puts money in the owners hands but leaves enough profit on the table for the investment group.
That’s why these things are gone before they list.
It sounds easy, but in reality it’s a grind. Most of these “teams” are professional investors who put 2 or 3 people on the payroll and their JOB is to record those pre-foreclosures everyday and do the title/background work.
You can do the same thing, but it’s a lot of work day in and day out for one person and the court house is only open Monday thru Friday from 8am - 4pm in most areas.
Fdjake,
I appreciate the information. I did not realize you are able to obtain preforeclosure filings from the courthouse. I will look into that without question. I am not trying to discount what you said but if the banks are buried in the properties and will not let them go then why would they keep reducing the asking price of the house? This may be just in my area but I do see properties listed at a discount and every once in a while the bank will drop the list price 30k on an 150k property to stir up activity. I guess what I am getting at is my belief that the banks are getting over loaded with property and at some point they have to start liquidating. What does everyone else think?
Your assumption is right. They WILL drop the prices as their holding time increases. And again, you are correct, they will drop prices as more of these homes come on market. BUT…
Look at it like this…your the bank…you have hundreds of homes that your foreclosing on. What do you do as a BANKER??? You divide those homes into groups. The first group is homes WITH EQUITY. These houses (and there’s not many) actually have equity, meaning the property is worth MORE than the mortgage balance. Now, as a banker those are the homes that you want to move quickly because you can find buyers AND actually MAKE MONEY on them. But…those potential profits are GONE if the bank holds it for too long (one burst pipe or a break in to steal copper and that profit is history). These are the homes that you NEVER see on the MLS. This is the stuff you were talking about in your original post. If a bank has $50K in equity in that home and can blow it out for $25,000 over what is owed??? IT’S GONE!!! It’s a WIN/WIN for the bank because they actually MADE $25,000 after they recouped ALL their loan money AND the house is out of their inventory.
The majority of the bank owned homes that are on the MLS are upside down. (The bank loaned more than the home is currently worth) This is the Second group. With these homes banks watch their HOLDING TIMES. As they hold them longer and longer they drop the price lower and lower until it sells. They NEED to get as much for these homes as possible because they are already taking a beating on them. This is why they get listed and not blown out in the first place. There is no better place to confirm this than at an AUCTION for one of these homes. If you do your background work BEFORE the auction you can find out what the mortgage was originally written for. If that mortgage was taken out in 2005, 2006, 2007 forget it. The bank is BURIED in it. Now go to the auction and watch what happens. You and the auctioneer will be the only people there. The auctioneer will have the banks bid, just ask for it. Guaranteed it’s what is owned on that home. They just go through the motions for legal reasons. 1 week later that house will hit the MLS and the nit wits will start chasing it. (I DO NOT want to imply I think your a nit wit, it’s just that a LOT of home buyers think ANYTHING bank owned IS a steal) Unfortunately THAT’S your competition.
The problem for you as an investor is…
YOUR COMPETITION FOR THESE HOMES INCLUDES LOT’S OF POTENTIAL HOME OWNERS JUST LOOKING TO SAVE SOME MONEY. This is why I don’t chase this stuff. There is no way I am getting into a price battle with some first time home buyer who actually wants to LIVE in that home. You can’t make money doing that because INVESTORS need to buy at a minimum 50% discount, potential HOMEOWNERS are happy with ANY discount.
I have friends who wanted to “get into real estate” they ALL knew more than me, because they just got a “really good course on it from TV” and now their ready to buy!!! I warned them about chasing this REO junk. Everyone of them purchased a “STEAL” from a bank. After a rehab that went over budget, guess what they ALL HAVE NOW???
NEGATIVE CASH FLOWING RENTALS!!! That’s after they all sat for 6 months with FOR SALE signs on them. NOW they’re asking questions :banghead
You hit on a very good point…I believe that at some point in this cycle the banks will reach a point where they just throw in the towel. If you can get together with a few investors and put a “Group” in place, you can contact these banks directly as the “ACME Group LLC” for instance, and buy “packages” of these homes from the banks in lots of 3, 4, 5 or more…
Banks LOVE this type of investor. They can unload a lot of property in one shot. BUT…you better have your game on…they will know if your a stroker or a Pro. If this interests you, talk to some other investors at your local REI club and see if they want to put something together? Have a lawyer lay out the rules and you can make this work. Especially in the upcoming year. These banks are going to get their @sses handed to them in 2008 with a full blown recession adding to and already half dead real estate market.
I’ve been doing this for 20+ years, did it through the last bust in 1989. Same Circus, different Clowns.
Fdjake,
Once again I thank you for the information and advice, I promise it will not fall on deaf ears. A couple of questions I have in regards to a couple of topics you discussed on your last post. The first is in relation to the banks dividing the properties into two categories. In order for them to locate which of the properties have equity and would be a candidate for a profitable sale they would have to have some knowledge of the surrounding home values as well as a knowledge of the current condition of the property. How is it possible that the bank could know this information being that they are located in other parts of the Country. Most of your larger banks have property in all 50 states so how could they possible know what each house is worth and what the market will bring for each house? What I am getting at is there must be a local source of information telling banks what each house is worth in its current state. Are they realtors, branch managers, or a third party that is contracted to do this for the bank and how have you been able to contact them?
Secondly in the last 20 years that you have been investing I am sure you have figured out how to buy properties from the bank before they hit the market. I have been hounding realtors and looking for leads at the Sherrif Sales (when a bank buys back a property I am looking at, I immediately call the realtor who lists property for that bank to put them on notice that I am interested and let me know before it hits the market) however it has not been a fruitful practice. Any ideas on how to skip the realtor and get to the source?
Thanks for all the input, and no offense taken to the dim witt comment, I see hundreds of them every week so I know what you were getting at.
You bring up some good questions. Let’s start with how these banks know the condition and value of these properties.
It all starts with LAWYERS…Banks use LOCAL law firms for this stuff. You can confirm this by simply looking at the representing attorney listed in the foreclosure notice in your newspaper. They use local attorneys because THEY KNOW THE LAWS in that state and they are THERE. These attorney’s are your ticket. My lawyers wife makes 6 figures a year lining up guys to do the CLEAN OUTS on these homes. This is going to answer a LOT of your questions. When a house is foreclosed on most people JUST LEAVE. And they leave ANYTHING and EVERYTHING. This JUNK must be cleaned out, and in some states STORED for the owners for up to 2 months. After that it can be auctioned. The bank pays for ALL of this. They pay the clean out crews through an attorney. The clean out crews must take VERY DETAILED before and after pictures in order to get paid. These pictures alone are amazing. These banks don’t miss a trick. The clean out crews even have to photograph the cabinets and closets with ALL DOORS OPEN so the bank knows they were really cleaned out. Paint and other HAZ MAT stuff is cataloged and the home maybe winterized if it’s in a cold region. EVERY single thing these crews do is itemized and recorded with pictures, if it’s not photographed YOU DIDN’T DO IT and aren’t getting paid for it… The lawyer makes money on the spread between what the bank will pay and what the attorney can get the work done for. So as you can see THEY KNOW the condition of these homes INSIDE and OUT. A simple appraisal ordered by the attorney while waiting for the cleanout is all the bank needs to do the math.
In addition to that, you have that LOCAL attorney calling the bank and telling them I may have a qualified buyer for these 12 homes.
Ever wonder why the houses your looking at aren’t filled with personal belongings and junk?? THEY WERE CLEANED OUT BY THE BANK!!
Remember…I’ve been through this before…so have the banks. They have entire REO departments devoted to extracting as much money as possible out of these homes.
The reason no one is talking to you is because your on the outside looking in. These lawyers are cleaning up with this stuff. think about it. If they have a really good client in the building business, or an investor who has spent hundreds of thousands of dollars with this law firm over the years. Who do you think is getting these deals???
Answer…it ain’t the little guys. These deals are going IN BULK to groups of investors who can buy them by the dozen. They flip all the closings back to the attorney who sent the deal to them, plus the title work, which is a JOKE because it’s already been done. AND BINGO…ONE RICH LAWYER!!!
There are a lot of very smart people out there who have done this BEFORE! I’m not saying there’s a conspiracy going on here. These attorneys are hired by the banks to dispose of these properties, there’s nothing illegal here. It’s just the way it works.
FDJAKE,
If a house isn’t purchased at the auction and after all that other stuff happens with the cleaners and lawyers, will the bank price the house for what they think it’s worth, or for what they have into it?
Bax
It depends on the house. These guy’s aren’t dumb. If they have a $500,000 home that was foreclosed on for a $350,000 mortgage balance, they’ll clean it and RETAIL (list) that home. They’ll price it under the comps and get all the bargain hunter home owners out there bidding on it.
As far as their costs go…these guy’s are BURIED in these homes anyway. They clean them because various state laws prohibit them from throwing out personal property :bs The banks aren’t doing this out of the goodness of their hearts. It helps to sell the house if it doesn’t have 6 month old food rotting in the cabinets.
As far as auctions go. Most of the stuff I’m seeing at auctions is just going right back to the bank and then listed on the MLS as CincyRehab says. They get what they can get for it, if not, after so many months on market they pull the plug and take the last best offer.
Cincyrehab,
Not sure if you can do the same in your county, but here in Cuyahoga County, you can get a tremendous amount of information online regarding any house. It’s also free. Sheriifs sales and dates for auctions, taxes, mortgages, owners, what the bank bought it back for, etc. It helps a lot in the stategy. Also fdjake is right. The paint and carpet only rehabs will never see the MLS.
CincyRehab,
I live here in Ohio also and I have bought many REOs. In my experience, you can occassionally get great deals from banks, IF you catch that bank at the right time and when you are patient. My point was that using only one approach to find properties won’t result in a lot of deals. Yes, you can find great deals on REOs in Ohio, but they are few and far between. Yes, you can find great deals at auctions, but they are few and far between. Yes, you can find great deals from desperate landlords, but they are few and far between. However, if you can do all of these different types of deals, you will have a steady source of deals.
Good Luck,
Mike
Hey fdjake,
Do the banks sell their houses “as is” only?
Also I recently wanted to put an offer on a bank owned property. My agent told me not to because the bank did not foreclose properly. He said there was a risk of the previous owners coming back for it. He also said the title was not clean. You ever heard of this?
Bax
CincyRehab,
I live and invest in Cincinnati also.
The legal newspaper which list all legal proceedings in the county (ie. foreclosures sales and foreclosure sales results) is
www.courtindex.com - you have to pay for a subscription though.
http://www.hcso.org/PublicServices/ExecutionSales/ExecPropertySalesDisclaimer.aspx
This is the Hamilton County Auditor’s page and list home that will be sold at sheriff’s sale.
My father who is an agent in the city told me about a guy named Micheal Armstrong who is one of the top residential real estate investors in the city. He has over 70 properties in 2 companies (TRI STATE HOME BUYERS LLC, and Armstrong Properties) and pays cash for all his deals.
Tri State Home Buyers llc is his company that he uses to primarily flip homes. last year he flipped 10 or 11 homes and from my projections made about 300,000k.
Armstrong Properties is his company that he uses to hold in his portfolio from longterm.
The reason I mention this is that he has flipped several homes in the Colerain area over the years and has made some pretty good money from this area . Not sure if you are aware but intolerance has the largest number of foreclosures in the county and some nice deals can be picked up.
I have compiled a list of all of Armtrong’s flips for 2007 and can send it to you if you like.
You can look up Armstrong’s properties on the Auditors website.
http://www.hcauditor.org/realestate/rover30.asp
Bax,
Most, if not ALL banks sales are AS IS. You can still have an inspection done but the bank isn’t fixing anything in most cases.
As far as the title goes. Yea, it happens all the time. Usually IRS liens or back property taxes. These people are usually missing more than just their mortgage payments. You need to find out what type of problem there is with the title. If it’s an IRS lien forget it, move on. If it’s just back property taxes that usually (check your local laws) isn’t a big deal.
fdjake,
Will the bank tell me, or do I have to find it out myself? and how can they sell a house without a clean title? Who would ever buy it.
Bax