In the past I’ve seen REO’s offer seller financing. But seldom if ever do they allow it anymore, at least on residential, unless you do the whole qualification process and jump through their hoops. Are you talking commercial property or residential?
Residential loans from banks normally must follow Fannie Mae/Freddie Mac guidelines which have more stringent requirements for down payments.
Maybe I am misunderstanding what you are trying to say here.
Posted by Todd (OH) on January 22, 2002 at 04:28:16:
Hello all! This is my first posting. I am very interested in getting started in REI. I just signed up for the Atlanta Conv and am excited. My goal is to acquire my first piece of property before the convention.
I have currently found 2 REO’s. One is asking 132,000 ‘as-is’. I estimate the ARV around 145,000(very little work needed). The other is 102,000 ‘as-is’ w/an ARV of around 120,000(about $2,000 in repairs). My question is, will banks normally except offers lower than their asking price on reo’s, or are they pretty firm(meaning they already take into account the damage to the prop)?
Next, is it hard to get insurance after acquiring these? I had an insurance agent(friend) tell me it is for most foreclosed property.
I want to thank you in advance for any help or suggestions. I’m lovin’ the knowledge that’s shared on this site.
Re: Offers on REO properties - Posted by Bill S. (Ohio)
Posted by Bill S. (Ohio) on January 22, 2002 at 06:06:22:
Todd, where are you in Ohio? Cleveland, Columbus and Cincinnati all have big REI clubs you can join. As for the banks, they take low ball offers all the time. That’s not to say they will every time—but so what? There’s a ton of bank owned properties out there. The thing you have to do if follow the formula and submit your offers based on that. What formula? Well, for REO’s it goes something like this:
Start with 80% of ARV—because most fixed up properties can be unloaded at this price if you get desperate. Also, banks will usually loan you 80% with no money down–so it’s a good, safe figure that most investors start with.
Subtract from that 80% your repairs—and allow a little extra for those unpleasant surprises that seem to dog so many of these properties. I’ll never forget the first time I saw one of these surprises. I was about sixteen and a guy I knew bought a house that looked in very good condition—right down to the fresh coat of paint put on by the bank. (The bank was smart and had figured out that a coat of paint makes a property marketable.) Anyway, a few weeks after he bought the property this crack showed up in a corner of a wall that he was going to work on as he wanted to expand the house. He tore into the wall to find that it extended beyond the foundation by about six inches! The crack was caused by all of the extra weight just hanging there in space. So, be ready for some surprises—and go to home depot and get one of their books that has all of their products with prices in it.
Then subtract out 10% of ARV for vacancy and marketing–don’t know how long you may have to hang onto the property.
Subtract out another 10% for your profit.
Then, just keep submitting an offer for the property each month until it sells.
What bank are you dealing with that allows to get an 80% LTV loan with no money down. The ones I deal with it’s 80% of the appraised value or the contract price whichever is lower. I’ve never heard of a bank allowing no money down unless it’s a VA loan or some type of seller financing is involved ???
Re: Offers on REO properties - Posted by Bill S. (Ohio)
Posted by Bill S. (Ohio) on January 23, 2002 at 05:28:39:
Rob, I don’t think you’ve been investing very long. I don’t say that to be nasty, but just about every experienced investor on this board has done a true ‘no money down’ deal with a bank.
My first investment property was a REO—the contract price was $27,000 and the Texas bank that owned it provided 100% financing!
As for the 80%, walk into the bank you use and ask them how much you have to put down to purchase an investment property. They usually say ‘80%’. Then ask them if they would lend you 80% of the market value of a property----the answer is usually yes. The reason is that banks have all sorts of ways to cover their buts in case of foreclosure UP TO about 80% of the market value of a property. So, that’s why they ask for 20% down and usually don’t care where they get it from.
Right now I’m in the process of buying a small, stand alone commercial building with two businesses inside. I’m buying the property for less than 80% of market value, and I’m asking for a loan at 80% of market value so that I can use the difference to pay off some bills (yes, you can also get cash at closing). The property was completely rehabbed within the last five years with just about everything new. So far, not one lender has balked at loaning 80%—would you if you were a bank?
So Rob, ask the bank you’re now dealing with. If they say ‘no’, go ask another bank until you find one that does. The banks I deal with are mostly big regionals that you won’t have in Florida—but lending practices are pretty standard. DON’T BE AFRAID TO ASK FOR WHAT YOU WANT!!!