Are REOs a good deal? - Posted by James

Posted by jasonrei on October 22, 2003 at 21:06:25:

Well, in my county there are hundreds of Notice Of Defaults recorded each month. What I used to do was narrow it down to about 300 that had promise. I’d drive by 90% of them and do a value and repair estimate. Out of the 150 remaining that had promise I’d do a quick title search, and end up with about 120 on my list. I’d figure out what I could pay and still realize a decent profit. I’d go to the auction with my money and list. Probably 40 of them would come up, most for way over what I was willing to pay. Of the 8 that I’d actually have a chance to bid on, I’d be outbid on 6 or 7. So all that work for one deal. That said, I’d end up making $12k-$30k profit after everything. These are homes I bought for $25k-$60k.

Pre-foreclosures: I got one with a $38k balance. The owners deeded me the house for $3k, I reinstated the loan for $4k, did about $12k in repairs, and had about 6 months holding costs. Netted about $18k on an $82k sale. Got another with $72k balance, $6k arrears, $0 to get it deeded to me, $10k repairs, sold for $110k in 2 months.

I did the preforeclosure/foreclosure auction thing for about 9 months. It took my partner and I about 2 weeks (full-time) each month, and we got 5 houses with profits of about $100k. Not too bad, but foreclosures are also somewhat risky (it’s so much nicer going through a formal closing with title insurance and tax certs).

Just a guess here, but I think if all I did was knock on doors, I’d get a couple of houses a month with $15-20k profit. When I get more time, it’s definitely something to get back into.

Are REOs a good deal? - Posted by James

Posted by James on October 21, 2003 at 19:50:28:

I am just started out and was wondering if REOs where better than pre-foreclosures or trustee sales?

My understanding is that I would need to deal directly with the lender that took back the property, but it seems the lenders would be more willing to sale?

Also, it seems the market for pre-foreclosures, or foreclosures in general would be more difficult or time consuming than REOs?

Any thoughts?


Re: Are REOs a good deal? - Posted by jasonrei

Posted by jasonrei on October 22, 2003 at 10:58:49:

My highest profit deals have generally been pre-foreclosures and those bought at the mtg foreclosure auctions; they have also been the most time-consuming. My REO buys take less time and involve less risk, but the profits have usually been smaller.

As for financing deals:
My preforeclosures didn’t involve much cash. Up front money under $10k (arrears plus a little cash for the owner to walk away). I take over payments, rehab, and resell.
Foreclosure auctions are riskier and involve all cash.
REO’s are usually cash, but I can slap a private lender loan on it if needed. You can use HML on these, too.

Re: Are REOs a good deal? - Posted by rm

Posted by rm on October 22, 2003 at 20:15:59:

I have yet to see a foreclosure in my county with sufficient equity to reinstate, rehab, resell and actually make a profit.

The only ones who had a first with any equity have had a second to deal with.
What percentage of your leads actually have the numbers to support your approach?