Hello, I was just wondering if any of you use a formula when submitting offers on REO’s i.e. offering 25% below the list price? If so, what are your results like?
Thanks,
Michelle
There is no ‘Magic Formula’ for REO’s. They take the highest and best offers. The trick to bidding on REO’s is to justify your offer. If you were selling the property and someone offered you a price lower than what you are asking for then you will expect them to have reasons for you, right? I know I would. REO’s are no different. They price them at market value and attempt to get as much as possible for them. Generally speaking, the only time you get the great discounts on REO’s is when the property has been on the market for over 120 days and/or if there is something wrong with it that will require a large investment of time and money.
A great example of this is of a property an Asset Manager was telling me about the other day. It’s a condo in CA that flooded after the owners moved out. It went un noticed for an unknown period of time, but long enough to fill a foot or two of standing water throughout the unit. IT wasn’t until a neighbor noticed the water gushing out from under the front door that the water was shut off. The HOA went in and removed all the carpet out of the unit then left it shut up tight. Well, there is over $35,000 in mold damage and removal to the condo unit now. FMV would be over $200k, but in AS-IS value it’s less than $100k. If someone were to make a cash offer they could pick this place up for less than $50k. You do the math. It’s the kind of REO investing everyone dreams of, but you have to have an investors mind set so you can turn a decent profit.
GooD Luck! :beer
If you plan on wholesaling, try to stick to the formula of (ARV*65%)-cost of repairs-wholesale fee. If you’re going to fix and flip it yourself, you can leave out the wholesale fee subtraction. Good luck with your offers!
Thats a good target!