What kind of an offer on REO

Question

I'm a complete newbie, and doing my research..I decided to look on the web at tax records for some of the house I found on Realtytrac.  I actually found that an REO was purchased for $60k, but can't find that it's listed anywhere with a realtor.

I called to confirm that it was still available (got the name and address from the tax website, and googled it) and it was.  They even gave me the code to the lockbox to take a look at my own free will.

Now, my question is...How much do I offer them?  I have the money available in an open line of credit?  Do I offer just a little over what they paid for it? Do I offer close to retail value?  The home sold for $335k prior to being foreclosed.  It's only 5 yrs old, 3 b, 2 1/2b home.  Nice...

thanks for the help.

Paul Cordero · Answer

Your best bet would be to find out how long it has been on the market.  If it has been longer than 180 days, then your offer will have a lot of weight.

Most banks have an in house team of appraisers who have already set the bottom dollar on these REOs.  The longer these properties sit on the banks books, the more money they are losing.

I have seen some properties in Michigan go for under $20K with the investor I work for.  These properties may have started at 80K and they end up selling for a lot less.  Eveyone should know that Michigan is the worst in terms of declining values right now.

Shane Wilson · Answer

If you want to deal with REO's get used to making offers after offer. Just be persistent and always make a cash offer.

Shane

Account Closed · Answer

Myles,

Technically ever offer has to be submitted. There can be exceptions when the seller has indicated they will only review offers that fit some specific criteria. In a sense the offer was declined in advance.

There is little room to prove that all offers were presented. You can specify that you are present when the offer is presented. A seller can decline to entertain the offer based on such a condition.

Make it up in volume. Make it up by showing that you can close, that you have cash or that you are serious about how you make your offers.

Expect that legally the lenders will have to come around. They can not legally wait for ever. They have no legal right to hold investment property. They are motivated by the regulators to clear it out sooner or later.

John Corey

N/A N/A · Answer

I have been looking at REO's in Lansing, Michigan.

I am avoiding Detroit, just because there are so many other investors there. I believe in the "Find out what everyone else is doing and then do the opposite" mentality.

I am finding the banks/brokers very un-flexible. The banks are counter offering just a few thousand off their listing price. I then counter-counter offer and it comes back a little bit more. In one situation I counter-counter-COUNTER offered and the bank came back with a price that was HIGHER that their original counter offer????

I also get the feeling that the brokers are not submitting my offers. Is this legal? I was under the impression that HAD to submit EVERY offer.

Does anyone know how I can bypass the brokers and deal directly with the banks?

Thanks

Myles

N/A N/A · Answer

To clarify are you saying you want to make an offer on the REO that sold for 60,000?  Is this the same property that you describe as having been previously sold for 335,000? I also am a newbie and interested in purchasing an REO.  I need to make some financial changes in my life in order to do so.  Once I am in the position to move my plan is to shoot low.  They can always counter or I can submit another offer.  I am in Michigan and I am looking at REO's that in some cases have been listed for 10 to 24 months and pristine properties are getting hammered.  My neighbors just sold a beautiful home after being listed 30 mos and a 200,000 price reduction.  This house started at well under a million originally. So this price drop was significant. That makes reselling an REO tough.  There is an REO near me that is listed for about 250,000 that sold for 570,000 about 3 years ago according to the tax records.  Great house.  Problems: Big house, will need a lot of paint flooring refinishing $$$$ etc..  Also the property taxes are 10,000 a year.  If I already had bigger pockets I might be more of a player.  Either way in my market I think you would have to shoot real low to make sure you come out making money.  Another odd coincidence is that I've looked at 5 REO's, of which 3 had pools, two of which couldn't have cost less than 30,000.  In Michigan a pool is not really an asset, when it comes time to sell, they are often a liability.

Account Closed · Answer

I am with Ryan on this one. What you offer is all about what the house is worth to you. In many situations the value you see is not close to what the seller wants. If they are really motivated they will come around to your number.

Ryan makes another point. Always create multiple exit paths. You do not know what the market will do in a few weeks or months. You do not really know what the property will have in terms of repairs, etc. The more seasoned you get the more you can predict but stuff still happens. Hence having more than one way to make money and have a successful deal is a plus.

John Corey

N/A N/A · Answer

thanks for the advise.

Being a complete newbie that's why I asked.  I'm going to take a look at it today.

I'll keep you posted.

thanks

Ryan Webber · Answer

Your offer is dependent on what the house is worth to you, and what its worth to you is dependent on your exit strategy.  Are you wanting to rent it, lease option it, carry the note on it, wholesale it, retail it?  What you are wanting to do with it (your exit strategy) stipulates what formulas you need to use to determine what the house is worth to you and what your offer is.

If you are planning on fixing up the property and reselling it on the retail market, then knowing what the After Repaired Value (ARV or what the house will sell for all fixed up) is and the estimated repairs are the two biggest factors in determining your offer.

If you are renting, lease optioning, or carrying the note, knowing the fair market rent will be a huge factor in determining value.

If you are wholesaling, knowing what investors will pay in that area for that type of house is essential to determine value.

To figure an offer on a property, start at the end.  Figure out your exit strategy and work backwards.

One more thing to chew on, its always good to have alternate exit strategies planned out if the primary doesn't go as planned.  This business WILL through you lemons, and you better know how to make lemonade with it one way or another.