Buying REO Properties From Troubled Banks

While, at least in Oakland County, MI, the foreclosure market wasn’t what it was in the “glory days” of 2008-9, there are still great deals to be found in REO properties.

However, walking into your local Chase and expecting to get smacked with deals is not how you should be approaching this. Real estate investors get rich by hunting for motivated sellers. Some banks are more motivated than others. The most motivated banks are those that are classified as “troubled” or “problem” banks by the FDIC. Without getting into the unnecessary semantics, once the FDIC (the entity that regulates banks in the US) decides a particular bank’s assets and liabilities are out of whack (by having too many non-performing assets/bad loans), they effectively put the bank on probation. This “troubled” designation means the bank gets audited quarterly instead of yearly. If they don’t pull themselves out of the tailspin (by getting those non-performing assets off their books), the FDIC will pull their card and they won’t be allowed to lend money anymore (ie, they die).

Sounds like some motivation to me.

Considering that banks make all their money from lending money to other people, not owning houses, you can see how they might be motivated to unload their dead weight for below market value.

The people who manage all the banks assets are… ready for this?
Asset Managers. Intense, I know.

Accessing asset managers at banks can seem daunting for many new investors, but it doesn’t have to be. Just remember a few key things when you’re reaching out.

• They actually ARE people. Contrary to popular belief, bankers are actually human beings, filled with blood and feelings and polyps, just like the rest of us. They are therefore subject to the same rules of etiquette and rapport as everyone else.
• They are stressed out. Banks (and therefore bankers) are under more pressure and scrutiny right now than at possibly any time in recent history. People who add to their problems don’t get deals. People who are solutions to their stress, do.
• Solve their problem. Asset managers don’t want to deal with neophytes who have no idea what they’re doing, They want their problems to disappear (in this case houses). They don’t want to help you learn to buy distressed REO assets, that’s just another problem. They want to deal with people who know what they’re doing and will help them clear their books.
• Learn their language. If you walk into a bank and say to Brittany, the teller “I heard you have some crappy houses you don’t want.”, you’re not getting anywhere. If you contact the asset manager and say “I understand you have some non-performing assets on your books you need to eliminate, I can help you with that.”, you might have a better shot. Even if you really don’t know what you’re doing, if you sound like you do, you can fake it until you have some actual experience.
• Use cash. Sorry, like many other REI strategies, you need cash money for this to happen. What did you expect? To strike up a great arrangement and then follow up with “Do you guys have an in house lender?”. The poor guy would probably have an embolism.
• Don’t negotiate. If you do your numbers and you know what the maximum amount you’re willing to pay for a particular property is, state it and sit. Either they take it or they don’t. Don’t get emotional about it, the manager sure isn’t.
• Have your stuff together. Have property IDs and written contracts. Make it easy to do business with you. Remember, you’re in the business of eliminating their headaches.

To find these troubled banks, you can search for “troubled bank list”.
I know, the nomenclature of the finance industry is impenetrable, isn’t it?

Good luck.