Up until recently, REO properties were somewhat of a waste of time. The banks simply weren’t willing to negotiate. It hadn’t gotten “bad enough”.
However, the tides are turning once again and the lenders are starting to listen. The truth is… they don’t have a choice.
The key here is to have a simple plan and to follow it on a consistent basis.
Setting Up Your Plan of Attack
Decide on how much time you want to invest in your real estate business. The good news is that with REOs, you can leverage a lot of the time, effort and resources needed. It’s about setting up solid systems and sticking to them.
Once you’ve got your system, it’s a matter of executing and being consistent.
Finding A Realtor®
First things first… you need to start getting leads and getting used to filtering through them quickly. You’ll want to contact at least 3 – 5 Realtors® to start. Not all of them will pan out, but all you really need is one good one.
Now the Realtors® should NOT be the bank’s agent. They work on behalf of the bank and will do little to look after your best interests in most cases. You need to have someone that will pay attention to the contracts and clauses, important dates, etc. Because of this, you’ll want someone that’s somewhat seasoned, or at least good with contracts. But you don’t want someone that’s too “conventional” either. We’re looking for someone that’s willing to submit dozens of contracts, realizing that it’s a numbers game.
Trust me… there are plenty of good, and hungry, agents that are happy to have the business – ESPECIALLY the repeat kind!
NOTE: If you have an agent that will get you an assistant code, get the key and have him/her give you a quick lesson on MLS.
Once you’ve talked to a few agents and have one or two that you’re comfortable with, it’s time to start getting your leads and filtering through them.
The agents can set you up with automatic searches in their MLS program. If they don’t know how to do this, they’re not the right agent. PERIOD.
Have the agent pull one initial search of all bank owned property in your MLS so that you can get a feel for the areas with heavy inventory.
Next, you want to have the agent set you up with automatic searches. I recommend that you have them sent to you daily. You can opt to have them sent monthly, weekly, daily or real time. You can’t afford to wait a week, but you don’t want your e-mail to be flooded. It’s best to get all the leads for the day in at once so that you can go through them during your time block.
You will want the agent to send you a FULL CUSTOMER REPORT. This is just like the Realtor® report without the other agent’s contact info. You get the full details on the property.
If you’re looking specifically for fixer uppers or some other type of property, include those as well to narrow your search.
At this point, you should be all set to begin receiving your leads on a daily basis. By the end of the week, you could have a deal in the pipeline!
Filtering Leads/Evaluating Deals
So now that you have leads coming in, you have to have a simple system for evaluating them. You can’t expect the agent to do a CMA for you for every lead. It’s the fastest way to burn your agent out.
It’s not necessary to do a full analysis on every deal because they’re just simply not all going to be great deals. And most people will tell you to focus only on the closed sales, but in a declining market or one with lots of inventory and days on market, you simply MUST include the active properties on the market because they are going to be your competition.
You can use well known sites like zillow.com, trulia.com, and realtor.com. They are all going to give you some ballpark estimates, but you don’t need to spend more than 2-3 minutes per property at this stage of the game. For closed sales, you can always check your property appraiser website as well.
HINT: When possible, use the “map” feature to see where in proximity the active properties are in relation to the subject property.
Don’t worry too much about repairs right now. You can generally assume cosmetic repairs across the board and the listing report will often have any major indicators of damage. If it sounds like a major fixer upper, you may want to drive by the property or send someone over for pictures of the exterior at least.
But you can classify your repairs into light, moderate and major. Based on your area, you should be able to have a ballpark based on this indication.
Submitting Your Offers
Now that you’ve got a system for getting leads and sent to you on a regular basis and process for filtering the leads, it’s time to starting making offers.
Remember, your offer is really just the starting point! It’s to “engage” the bank and you have plenty of time to come back and run your due diligence and to renegotiate repairs, costs, etc.
Since you’ll be going through a real estate agent, you’ll want to get familiar with the state approved contracts. This is what they are comfortable with and most lenders will prefer a standard contract over investor contracts. When possible, look for a state contract that calculates in business days! This will buy you some time during your inspection period.
Now, you can have the agent fill in your first contract for you and send it to you in “EDITABLE PDF format”. This will allow you to use this as the standard and make changes as necessary for each property.
So, you simply write up your offers at 50 cents on the dollar and send them back to the agent to fax to the other Realtor®. It’s that simple!
It’s a win-win. The agent is submitting contracts without having to do extra work. You know exactly what’s on the contract and you’ve got about 1o minutes into each offer!
This is truly a numbers game at this point!
But, I can promise you that if you do this daily and submit offers on all of the properties that come through, it’ll be a matter of a few days – maybe a week or so – to have at least ONE that comes back with something you can work with.
Don’t get bogged down on things like: What happens if they all accept? (They won’t) or But what if I don’t have the money? (You can find it!). Etc…
(Keep an eye out for Part II)