Why and How To Wholesale Bank Owned Property (REO)

 Banks have been dumping of REO properties in the market that have created a huge amount of inventory. This action is leading to sharp decline in housing prices. There are many amazing bargains to be taken advantage of when you buy REOs directly off the MLS.

It far easier to go directly to REO properties listed on the MLS than trying to find wholesale deals by marketing for sellers all over town. When you buying directly from the bank, it  is the easiest and most efficient way to find wholesale deals.

I recently placed a classified ad on Craigslist for a low priced house that I had under contract I received phone calls from around the world along with 30 other phone calls a day for this property. This is at the same time the media is saying how bad the housing market is. The prices are so low that bargain hunters have come out of the wood work. Perhaps a home builder might have a difficult time selling individual new constructions, because this is a buyers market. Anyone that has cash knows that it’ the time to buy. That is why its a good time to be a wholesaler.

As a wholesaler, you submit a contract on a REO property then after the bank has accepted your offer, you can “deliver” it to the cash investor. Yes I know that cash investors look on the MLS themselves. The key is to beat them to it. If you can spot a great deal and get it under contract before they do .. you win. The cash investor is going to have to buy it from you.

Many cash investors that are buying now are landlords looking for rental properties. Landlords also want to buy properties at cheap prices. This is why there is such fierce competition to find these REO deals. The key to success is about who can submit a offer t and get it approved by the bank first. Whomever has their offer accepted first means then can then sell resell it for a profit.

There are many cash investors looking for deals that when I send out an email to my buyers list they are usually sold to in less than 48 hours.  I am seeing multiple properties get bid up substantially over their list prices. At the same time, the banks are becoming smarter and realizing that it does not benefit them to dump a lots of inventory on the market. They are now starting to release their inventory slower in order to change the supply and demand ratios.  This is  the best time in history to get started as a real estate investor or wholesaler.

What is Required to Submit an Offer.

  • A Proof Of Funds Letter POF)
  • Cashiers Check For The Ernest Money Deposit
  • Purchase and Sale Contract

We will cover these 3 things now.

Proof of Funds Letter

If you have cash available, you can print out a bank statement  showing that you have the cash available to purchase the house. If you do not have the cash available then you need to find someone that does have the cash.  You can ask a private investor or a family member for the cash to provide you with a proof of funds letter.  Another option is to get  a proof of funds letter from a transactional funding company  such as Best Transactional Funding

Cashiers Check For The Deposit

You will need a minimum of $1,000 dollar deposit in order to submit a purchase contract on a bank owned property.

Purchase Contract

Banks do not allow you to assign contracts. This means that you cannot simply put the words “and or assigns” next to your name and use an assignment of contract form. You are going to need to purchase the property in either your name, the name of a company or in a land trust. Land trusts may or may not work depending on how the bank feels about them. They don’t want to see you making money on their property

1) You can also purchase with a LLC that will give you more options. You will be able to assign the membership interest in the LLC to your cash buyer

2) When you purchase in  a Land Trust you can assign the beneficial interest . Land Trusts are free to set up and you can change the beneficial interests easily which makes them great for wholesaling. However, some banks are starting to realize that many wholesalers are using land trusts and they don’t like that you are going to make money from their distressed deals.  If you are going to use a land trust the following is how I would do it

a) Buyers name should be your name as trustee. For example if your name is “Mark Wholesaler”  then your buyers name on the contract should be Mark Wholesaler  as Trustee or Mark Wholesaler Trustee.

b) Put down only a  $1,000 deposit. Never put down more than that. You are responsible for cancelling your contract and getting your deposit back prior to the end of the expiration period. If you don’t cancel in writing you will lose your $1,000!

c) Use your own title company and put it in the addendum. If you pay for your own title policy the bank should not object to you using your own title company.  Sometimes the banks title company does not do adequate  research and miss liens By using your own title company they will be more meticulous. It is a good idea to write in the addendum that you will be closing with your own title company and will be paying for your own title policy.

d) You should give yourself a 14 day inspection period. You need this period of time to market and try and find a buyer for your deal. In reality, the bank will often counter you at 7 days and you might be able to wrap it up at 10 days. However I have many banks agree to the 14 day inspection. Under no circumstances should you submit a contract without an inspection period of at least 7 days..

Once you have submitted a contract, you will wait for the bank to contact the listing agent. The bank will probably counter your offer. For example if a house is listed at $60,000 and you offer $50,000 they might counter you at $88,000. Then you should counter them back until you reach your maximum offer price at which you do not agree to go any higher. The highest you will go is called the “highest and best offer” which is what the bank will ask for if there are multiple bidders.

Once the bank agrees to your price and signed the contract, you have the deal and will execute the contract. I would start marketing now if you have not done so already for your buyer.

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