Need advice on REO listing - Posted by Lette

Posted by Dave T on November 10, 1998 at 21:07:28:

What is the full market value of the property? It may be priced at 87K because that is all that it is worth with condition of the property already factored into the list price.

In my limited experience with REOs, the bank will already have done an appraisal, and will usually list the property for its appraised value. If the property is worth 87K and is in ready to occupy condition, then your best way to profit from this deal may be to buy the property with little to no money down, and operate it as a rental for a few years. Your positive cash flow will be a profitable income stream while the property is appreciating. If your rents cover all your expenses and still leave you a little positive cash flow after paying the mortgage, then your tenants are buying the property for you.

I you don’t like the idea of maintaining a rental property, then lease option the property to you tenant/buyer for five thousand more than you paid for it. Collect $2500 in option money and above market rent during the option period. Rent in excess of the going market would be given back to the tenant/buyer as a credit against the purchase at closing. During the option period, the tenant could be responsible for all minor repairs, thus releaseing you from a maintenance worry. At the end of the option period, if the tenant does not exercise the option, you keep the $2500 option money and all above market rents. If the tenant exercises the option, then you get a quick 5K profit from the deal.

Adapt this scenario for your own needs and set the amounts to recover all closing costs as well. I would wonder why the bank is so willing to give 100% financing for this property. It may be that the property is priced way below its true market value, but it may also be that the bank is anxious to get this non-performing asset off its books. Perhaps they are getting ready for an audit and converting a non-performing asset to a performing loan improves their financial posture. If this is the case, then you have a very motivated seller.

Need advice on REO listing - Posted by Lette

Posted by Lette on November 10, 1998 at 19:54:42:

I saw a REO listing that looks promising. It is priced for 87K in an area where homes are going for 200K. My question is what is the best way to profit from this deal. I’m thinking I can go through the process of getting a loan, buying the property and then reselling it. But instead of doing that, I’d like to know if there’s a way to get it under contract, advertise it and then perhaps assign the contract. Below is a description of the property as it is listed with the bank:

“Imagine living just two blocks from Lake Hopatcong and Marina. Secure fenced backyard, great for kids or animals. Large full basement with garage door entrance. Great buy for the $$$$. Plus 100% financing. No PTS. No Application Fee. No PMI. Financing offered by seller to a qualified buyer.”

Would a deal like this call for an assignment of contract or a double closing? What would be the quickest way to profit from it?

Thanks in advance for your advice.

Re: Need advice on REO listing - Posted by Irwin

Posted by Irwin on November 11, 1998 at 05:01:00:

Homes in the area might be selling for $200k, but what is this particular one worth? Be careful. The last time I checked, banks weren’t giving away high priced homes. Is this one of those too good to be true deals?

Re: Need advice on REO listing - Posted by Jason-DTX

Posted by Jason-DTX on November 10, 1998 at 22:09:16:

The answer to your first question (how to tie it up) is that you just need to make an offer, if it gets accepted then you will have it tied up.
Secondly, whether you do an assignment of contract or a double closing doesn’t depend on what type of deal you have or how you buy. It depends on who your buyer is. Do you care if they know how much you make on the deal? Some buyers are greedy and its best if they don’t know your profit. Some buyers could care less and you can just assign the contract. It also depends if the bank has a special addendum to the contract saying that is is unassignable, alot of them do.
The first thing you need to do is determine what to offer on the property, then you need to have it accepted, then you can worry about how to close it. If you get a good deal tied up there should be no problems in getting it resold or bought.
Good luck