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REO or Bank Owned Real Estate
Pick up any major newspaper, and you will find an article detailing the growing foreclosure problem that grips America. In September, 81,312 homes were lost to foreclosure. During the same month 265,968 troubled homeowners received foreclosure filings which include default notices, auction sale notices and bank repossessions. Banks are drowning in the number of foreclosed properties that they have in their inventory. This has opened up a golden opportunity for real estate investors.
Previously banks would not sell a property below their cost. To make matters worse the bank would not pay one penny to rehab the house to a livable condition before listing it for sale. Now banks are starting to respond to this glut of inventory by steeply discounting the selling price on their real estate owned (REO) properties. Banks are highly motivated to remove these non-performing assets from their books.
Almost all bank REO properties require some level of rehab. Investors are in the enviable position of being able to trade their sweat equity in the rehab of a property in exchange for a discount of 30 percent to 40 percent in the selling price. Investors are able to pick up bargains, rehab the property and then either sell the property for a quick profit or convert the property to a rental.
The downside of snatching up these bargains is dealing with the bank. Most banks require special addendum's and stipulations that are necessary to be completed before submitting an offer. Even after submitting an offer it is not unusual to have a bank take several weeks to respond. Investors can expect to foot the bill to turn on utilities in order to complete an inspection as the bank will not pay for this expense. Banks will generally sell the property in an as-is condition with no warranties. The investor bears the burden of doing their due-diligence before buying the property. Dealing with the bank can lead to frustration on behalf of the investor. The frustration can be well worth the wait if you are able to purchase a property for almost half of its market value.
Home buyers are not interested in purchasing a property that needs major improvements so agents would not market REO properties. With the declining housing market and tightening credit market, the pool of home buyers has declined substantially. Agents have adapted by focusing on REO properties as investors are actively buying in this market.
Investors are finding it easier to find bargains in bank REOs by working directly with other real estate investors.
Which real estate formula should you get started with?
You have lots of choices. But, this one is best for when you already have some capital and want a great return on your investments – Buy REO (bank owned) foreclosure properties online directly from this website at wholesale prices and learn how to resell or build cash flow as you build your real estate portfolio.
It is a very simple real estate formula. The ads have been running in our local Chicago newspaper for years before I realized exactly what was going on. They were always the same: A house for sale with 5% down and payments of 1% of the purchase price. Maybe a three bedroom home for $90,000, for example, with $4,500 down and $900 per month payments.
When a friend started doing the same thing he explained the process to me. It was a way to get a great return on capital, and it was the opposite of buying with no money down. There is no down payment at all when you buy, because you buy for cash.
My Simple Real Estate Formula
You probably know that when you buy for cash, you can often get a much better price. With no financing contingencies in the offer, and the promise of a faster closing, sellers are willing to sell for less. You can offer $95,000, for example, on a house that might be worth $108,000. If you can't get it for less than, say, $99,000, you walk away – there are always other opportunities.
Once you buy the house, you put few thousand into high-return repairs and improvements. These might include paint, carpet, and maybe asphalt for a dirt driveway. For our example, we'll say you spend $5,000. Let's suppose the house is worth $116,000 now. You're ready for the next important step in this real estate formula.
You put it up for sale, targeting buyers who can't get financing easily. You provide the financing. Because you are making it easy for the buyer, you can get more than the $116,000 value for the home – and do it without paying a realtor's commission. Let's say you sell it for 123,000. The buyer needs a down payment of just 5%, or $6,150, and makes monthly payments of $1230 per month. You charge higher interest than the going rates at the banks, of course.
This is a win-win situation. Your buyer is able to buy a home instead of renting, and you get a capital gain of perhaps $16,000 after expenses, plus good interest. Your total rate of return will often be over 20%!
In our town, the first to do this consistently were a father and son team of lawyers. They saved money by doing their own foreclosures when necessary. Once they foreclosed, they raised the price and sold the home all over again.
They made millions. Did you know that if you can get an average return of 18% on your money, you'll turn $75,000 into more than one million dollars in about fifteen years? That's the power of a good real estate formula.
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