Help, I'm Confused!

[RuLea Hunter]

Good evening, I would like a few of you seasoned investors opinions. I'm just getting started in my REI business. I have not closed a deal yet, and I'm focused on wholesaling. Today I had my first experience with trying to make an offer on a REO. I wanted to offer 40% of ARV, and unfortunately I didn't even get to submit my offer because I was having some technical difficulties. I just finished reading an old forum post from 2007/2008 about how the banks will list their homes close to market value and won't budge on the price, yet these are "non-performing" assets they have to get rid of. I currently get daily listings from a broker, who then will submit my offer to listing agent. Is this the way to go? Is there an easier way to do this?

What about the offer? How could an investor possibly want to buy an REO that needs between 15k-70k for repairs and make a profit? How do you get your offers accepted? Especially if I want to "flip" the property to a cash buyer? Are there any investors out there who are currently buying and flipping REO's?

I keep running into these "gurus" who say there's so much money to be made buying REO's, yet there's so much conflicting information. I'm confused, and frankly very frustrated. I feel I can't get any "real" information without being sold a home study course. I have been at this for almost 4 months, and I'm beginning to feel hopeless. Someone, please help me out and offer any information you can, from one investor to another. I'm sure some of you have been in my position before. I'd be forever grateful. Thank you.

RuLea

[Jon Holdman]

There's no one answer. For the most part, banks will have a pretty realistic idea of what the house is worth in good condition and what's needed to get it there. They price properties at about the retail value less repairs initially. Of course there are exceptions either way. Over time, roughly once a month, banks will lower the price. Generally, they aren't going to take a significant discount off the listing price. So, you have to watch and strike with the price drops. Lots of folks watch the MLS very closely, and when the price gets right, it will sell quickly. Hours, or a day or two at most.

I've also seen banks price houses relatively low. Those seem to draw multiple offers and create a bidding war.

Flipping REOs is very difficult. For one, the bank will want a significant earnest money. $500 or $1000 is pretty common for houses in the $70-90K range. You can delay sending that in until you actually get an accepted contract, but if they accept your offer, you will be expected to produce the EM very quickly.

Banks will almost always include an inspection contingency in their standard addendum's. Typically about a week or so. If you claim "all cash" in your offer, that's your only out. If it expires, you are not getting your EM back. If you do say its a cash offer, the bank will often want to see proof of funds in the form of bank statements showing the money available. If you say its financed, they will want to see an approval letter from a lender. Sometime, they only accept their own lending branch.

Banks will not let you assign contracts. Title companies that will do double closings using the end buyers funds are pretty rare. You'll probably need transactional funding to close with the bank. You then pay that back from the sale to your end buyer.

Banks sometimes put restrictions in the contracts or deeds about reselling quickly.