Buying Bank Owned Properties (REOs)

These are the important points that I took away from an REO workshop with Rick Rickerts of infoclosure.com, February 9, 2008.

• In January 2008 over 2,000 properties went back to the bank in Maricopa County -- that was over 90% of the properties that were "called out" (auctioned off)!
  
• It takes between two weeks and six months for a property taken back in foreclosure to make its way onto the MLS. So if you've got a contact at the bank, you can call up and tell them you want the property before it goes on the MLS.
  
• A good way to get contacts at the bank: When you make your REO offers, put in the Contract "Buyer to be present at the time the offer is presented to Seller" (if it's a local bank or asset manager). Or, if the decision maker is out of the area, put "Buyer to receive confirmation by decision maker upon receipt of contract".
  
• When you make REO offers, include supporting documentation such as photos and actual repair bids, just like you would do in a short sale situation. Also include a CMA (property valuation), but get it from a third party, i.e. another agent, preferably in another brokerage.
  
• If your offer gets rejected, ask for a detailed explanation of why it was rejected, e.g. "I submitted the repair estimates, market data, and supporting documenation, so you can see that my offer makes sense. Please explain why it wasn't acceptable to you."
  
• Same idea on counters -- ask for an explanation of the difference in price.
  
• You can go on the banks' websites and see lists of REOs, e.g. countrywide.com. But they are generally already listed with real estate brokers.
  
• When you are doing fix and flip and you have vacant properties, you need a BUILDER'S RISK insurance policy, not a homeowner's or landlord's policy. Challenge your agent and make sure you're really covered.
  
• When deciding on his MAO (Maximum Allowable Offer), he has a couple of other real estate agents comp the property, so he has something to compare his valuation to. And he's willing to do the same thing for them. He asks them for a value that he'll be able to get it sold at within 4 months.
  
• Calculating daily interest payment on hard money (or any loan) is simple using the formula price * (rate / 360). So for typical hard money at 18%, the daily rate is 18%/360 = 0.0005. On a purchase price of 200K, your daily interest is 200K x .0005 = $100/day in interest.
  
• A great way to learn how to inspect properties is to "ride along" with home inspectors. Pay them $100 for each inspection to let you tag along, and go to 5 or so inspections. (I would get it free by offering them the business on your next property).
  
• To check if tile was laid properly, bounce a golf ball on each tile. If it sounds hollow, there wasn't enough thinset, and the tile's going to be coming up sometime. (This will only work on the ground floor, when tile's laid on the concrete slab.)