Winter home buying tips, for bank-owned properties specifically, can range from the utterly useless to the unequivocally invaluable. The winter home buying tips you implement over the course of your next bank-owned acquisition can either make or break your deal. One thing is for certain, however: the right tips can make the process of acquiring bank-owned deals a lot more manageable.
Bank-owned properties, otherwise known as real estate owned (REO) properties, are those homes that have seen their ownership revert back to the original lender. As Investopedia so eloquently puts it, if “the borrower associated with a commercial or residential property defaults on the mortgage, the lender can pursue a foreclosure action to repossess the property.” In the event the home fails to sell at auction, or if the lender is the highest bidder, the property is officially dubbed real estate owned, and something you should look into.
Due to their status, REOs award investors a great opportunity to acquire an amazing deal, but I digress. Buying REOs is not like buying an average listing; there are more “hoops” to jump through. That’s where these winter home buying tips come in handy.
In order to successfully acquire an REO property at a price you deem “profitable,” you must first understand one thing: banks are not in the business of holding properties. While it’s true traditional lenders will repossess homes that default on their mortgages, they would rather not. In addition to losing out on the money the borrower initially promised to pay back, the acting bank now has to deal with non-performing inventory. You see, when banks take back properties that failed to keep up with their mortgage obligations, they become their responsibility, and nobody else’s. As a result, they are forced to hold on to an asset that is costing them money without bringing anything in; that’s an important distinction to make. Lenders simply don’t want to have these properties on their books as non-performing assets. Once you understand where the lenders’ interest lie, it makes buying REO properties a lot easier.
Once you are fully aware of the bank’s stance on owning properties, the following winter home buying tips should prove invaluable:
You’re Not Alone, So Don’t Act Like It
If you think you are the only real estate investor savvy enough to contact banks to get your hands on their REO inventory, you are sorely mistaken. Since the recession, REOs have served as one of the single greatest resources for investors. The very nature of their ownership makes REO procurement a viable exit strategy for any investor capable of executing it. As a result, it’s safe to assume almost every REO you find yourself looking at will have already captured the attention of another buyer; there is competition whether you realize it or not. Having said that, you must proceed accordingly.
I maintain that you must treat every REO the same way: like it’s a commodity every other investor in your area wants. That means you can’t march into the bank and present them with an unjustified lowball offer. Not only will your offer need to compete with other investors, but the banks aren’t stupid; they know the value of their properties. They aren’t simply going to sell an REO for under market value for no reason.
Instead, you need to give them a reason to want to sell to you. You need to provide them with a price and the data to backup your offer. If the house is in poor condition, run the numbers and find out exactly how much it would cost to restore it to the same condition as nearby comparables. It stands to reason that if too much money is required to restore the home to sellable condition that the bank will be willing to part ways for a descent sales price.
Before you knock down your bank’s door with an otherwise embarrassing offer, understand that you are not alone. A lowball offer will not get the job done in an industry as competitive as REO investing. Instead, be prepared to offer a little more and conduct a great deal of research. Only once you have all the data on a property can I recommend moving forward with this particular strategy.
Persistence Pays Off
Dealing in REOs is about as divisive of a real estate investment strategy as they come. While they can be incredibly rewarding, success favors those that put in a lot of work. You see, REOs represent some of the best deals on the market if you approach them correctly, but they are not without their annoyances. Namely, the entire process is mostly out of your control. You see, whether or not you acquire an REO deal is entirely dependent on the people behind the desk at the corresponding bank. It is, therefore, in your best interest as an investor to keep your request at the forefront of their mind.
As I alluded to before, REOs are sought after by the masses. It’s not uncommon for banks to receive countless offers for the properties currently residing on their books. As a result, it’s quite easy for your formal request to get placed at the bottom of a large pile or — even worse — lost. The sheer volume of inquiries alone is working against you from the start, but that doesn’t mean you can’t do anything about it.
In the event you have found an REO property you are interested in buying, do not hesitate to remain persistent. It’s not enough to simply submit an offer and hope you receive a call; you have to do what you can to keep your offer alive and well. Sometimes that means calling to check on the status of your offer; other times it means scheduling an appointment to go over things in person. Whatever the case may be, do not assume it is enough to simply submit an offer. As an investor, you need to hold the bank’s hand through the process. Don’t let them forget about you, because they have developed a reputation for doing so.
Mind Due Diligence
No bank-owned offer is complete without what we in the business call an REO packet. As its name suggests, an REO packet details every aspect of your impending purchase. From the offer price to your very own credentials, a good REO packet will leave no stone unturned and answer a lot more questions than it asks. More specifically, however, your REO packet should convince the bank that you are the person they should sell to. By the time they finish reading it, they shouldn’t only want to sell to you, but they should have a good understanding as to why and how your involvement helps their particular situation. Again, don’t forget to include data that you have confirmed through research.
For an REO packet to be effective, it must be perfect. Not only can you expect the bank to confirm the numbers you are presenting them with, but they will have little tolerance for anything that is even slightly out of place. The second they see any inconsistencies, they will gladly move onto the next offer, so don’t give them the opportunity.
In drafting your REO packet, mind due diligence and make sure everything is complete. The bank should see you already have funding lined up and waiting. There should be absolutely no missing signatures or date fields. Nothing, and I mean nothing, should be left blank or incomplete.
When all is said and done, the more comprehensive your REO offer packet is, the more likely you are to land the deal. If anything is missing, the bank won’t hesitate to throw your offer out, as they don’t have the time for all the back and forth it would require to get things back in order.
Following these winter home buying tips for REOs won’t guarantee you a deal, but they can greatly tip the scales in your favor. If for nothing else, navigating the REO process is complicated; the more direction you have, the better. At the very least, they will give you a slight advantage over the competition, which I would argue is all you need to close on your next deal.