How to compete with owner occupied REO buyers?

Question

I am finding it VERY difficult to even be able to bid on REO properties that I know are going to be good flips.

Simply because these homes will have a restrictions not allowing investor offers for 10 days or even 30 days, etc..

So by then, the homes are under contract by supposedly "owner occupied" buyers, not investors.

Could you please tell me how are you bidding and buying these homes despite these restrictions?

Iis there a way to get around this? Please share....

thanks a lot!

J Scott · Answer

In my area, I haven't seen that in three years...

Yes, the agent will allow you to submit an offer prior to listing, but will then hold it and submit it to the bank on the day of listing.  If it's a good deal, the agent will receive more offers that first day, and you'll be competing.  If not, your offer will get submitted on day one and you may get it under contract in a couple days.

Again, that's my area...other areas may be different.

Scott W. · Answer

You should have a lot less OO competition in the winter as non-peak buying season. Not sure how long you've been looking though.

A lot of OO's freak out when they find out about the mold, etc & others won't qualify for a mortgage so it goes back on the market.

Rob K. · Answer

This is very true. I can't tell you how many times I have written an offer on a house and it gets rejected only to get a call about a month or so later. Slow and steady wins the race.

J Scott · Answer

First, there are no legal "work-arounds" for making offers before the investor period starts...

That said, if you tend to focus on the types of properties that won't qualify for FHA or conventional financing (properties that aren't move-in ready), you should have a lot less competition from owner occupants.

Also, the properties that tend to be in bad shape will often fall through when owner occupants get them under contract, so keep your eyes out for when they come back on the market.

Joel Owens · Answer

Well I haven't  worked in residential for years and years (long time ago).

When I did a newbie investor would be looking for a house with just cosmetic (carpet and paint) to flip.

The newbie investor was scared of anything more substantial.Problem was all the regular home buyers would bid close to asking or over because they were fine with fixing up and having 5k to 15k equity afterwords.

The investor could not buy at those margins unless they were holding to rent out and the rental numbers made sense for the price paid.

So in my opinion finding a home near mint that needs little work at  a low price is finding a needle in a haystack.More realistic for flipping is finding properties needing substantial work where the owner occupant is scared away.

You the investor can get the problems fixed really cheap below regular labor and material rates.This helps you achieve more leverage to buy the property at  a lower price and create more equity on the rehab as well.

That is probably where the bigger returns are.

Mary Cronin · Answer

Another option - if you see a vacant property with a lock box but not on MLS, its between the bank and the MLS. If you contact the bank and ask who will be agent you can talk to the agent and tell him/her that you understand he/she will be the agent on the property and as soon as the listing comes through you want to make an offer. The agent will likely give you a call before putting it on the MLS. Works best if your offer is at bank's asking or better.

That's how properties go on mls already pending.

Don't bother asking the bank anything besides who the agent will be. Good luck.

Mary

NA N. · Answer

@Brian Burke

I am liking option number 2 a LOT.. I need to get my LLC put together asap because there is one home that is a profitable flip that was just put under contract by an OO. I will send the agent my offer in hopes the buyer walks.. 
Good strategy.. Really.

As for number 3. That is a very sophisticated strategy for me at the moment. But I'm sure others might benefit from this tip.

Thanks for all your comments

Brian Burke · Answer

There are basically 3 ways:

1.  Wait for the listing to go back on the market.

2.  See if the agent will accept a backup offer after the OO reservation period has expired, with the hope of just moving into contract if the first buyer rescinds (without going BOM).

3. Partner with a non-profit.  Most of the OO reservation periods also permit governmental agencies and non-profit organizations to submit offers.  I've seen groups partner with a non-profit, the non-profit buys in their name, the operating partner does the rehab, provides the capital, and deals with the resale, and the non-profit and operating partner split the profits in some manner.

I'm not a fan of option 3 but it's a creative trick.  I think the intent of the exemption is to allow non-profits to acquire affordable housing, but instead it is exploited such that the non-profit uses it to generate revenue.  I wonder if "they" will catch onto this trick someday and change the rules to prohibit it.

Stephanie Anson · Answer

I have seen some crazy buys by so called "owner occupants"recently  I looked at a house that was a Fannie and there was a kitchen fire, entire home had smoke damage and kitchen needed to be gutted....House was worth around 180,000-fixed up but needed 70,000 in repairs. They were asking 70,000  The agent told me they had 4 offers from owner occupants (also needed to be cash offers since it had fire damage)  I just could not wrap my head around that!!!  Maybe 1 but 4 cash offers for owner occupants in a first time buyer neighborhood!  Crazy to me!

NA N. · Answer

you guys have nailed it. Thank you

I need to change my strategy when looking for REOs.. .

I live on the "auto notification" so I get email at midnight when a new home that qualifies under my criteria hits the market.

Focusing on this way of searching gives ma what's "hot and gone" (new patented cool phrase :) ).. and almost all of the time it is by Owner Occupied buyers, who snatch them from my fingers.

I am going to focus on the BOM (back on market) and also start "saving" the new ones that I consider good flips and keep a close eye for when/if they come back on the market.

Thing is.. that as you mention JScott, I should focus on the ones that don't qualify for FHA, but most of the time you have to actually go "see" the house in person to determine if it won't pass FHA.. as in my experience in my area most listing agents won't state it won't pass (few do though) on the listing remarks and won't post pictures that show the real damage so one can spot it by pictures.

They will allow the buyer to get it under contract and "see what happens" because it might just be on the verge of passing FHA.

Just today this happened while I am helping a buyer buy an REO.. the house didn't have half a roof.. but the picture on the listing showed just the portion of the house with the roof. A waste of time.. you gotta love your REO listing agent.. LOL.. you know how it goes..

Thanks folks

How to compete with owner occupied REO buyers?

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