REO: Are Banks allowed to Fix & Flip?

[Shmuel Harris]

My question is pretty basic...

Are banks allowed to fix and flip?

I am trying to figure out how to get my foot in the door. My market (NYC) is pretty competitive and I don't really have too much that I am able to offer to any successful F&F's. So I thought maybe I could approach a small bank with the idea that I would show them the numbers, comps, arrange to bring in the contractors and run the fix and flip and kind of partner with the bank. Probably there is a glaring problem with this approach but I can't see what it would be. Either we would keep the property in the banks name or we could try to arrange a HM loan where the bank lends me the cash for the property. 

I think where this question kind of leads to is, why don't the banks themselves engage in the F&F industry. If a company becomes proficient enough, instead of the F&F's making the margins available, the banks would be able to keep the profits for themselves.

I do understand that banks are not in the REI business, and that would be a primary reason why the bank would not be interested in this approach. That being said, I don't understand why banks don't have a business relationship with contractors or F&F's that would allow them to profit more than what they are already making. The margins are so large here in NYC that there should be a way to profitably split the $. I am hoping you guys can enlighten me.

I have way to many problems of my own with this idea but I figured I would put this out there for you guys to consider. 

Thanks for your time.

(If you made it this far, lol.)

Sam Harris.

[Andrew Syrios]

Banks can fix and flip if they wanted, but that's not the business they're in. The big problem is banks want this excess inventory off their books as quickly as possible. Due to fractional reserve banking, banks only have to hold 10% (I think that's what it is now but it may have changed) and can lend out the rest. An REO counts as holdings. Meaning that if they have a $100,000 house sitting on the books, they can't lend out any of it. Even if they sold if for only $80,000, they could then lend out the $72,000 of what they made.

There are probably regulatory issues (it's a nightmare in banking) that would prevent them from partnering with local investors, but even if there aren't, banks just aren't going to be interested in partnering with an investor to get high dollar on their REO's. I think it's a good idea to approach such banks, but look for a different partner to bring the money and make it easy on the bank by just taking the property off their books.