There are lots of myths surrounding REO investing and REO property in general. In this article, I’m going to share with you several things that 99% of all investors don’t know, which will give you an advantage as you being to invest in REO property.
Myth #1: You Can’t Flip and REO Property
Most investors think that you have to actually close on an REO property before you can turn around and sell it to another investor or end buyer. This stops the majority of real estate investors dead in their tracks, before they ever even get started.
However, this is simply not true.
In fact, there are 3 different ways to legally and ethically flip REO properties and one of the most common is through a simultaneous closing.
A simultaneous closing is where you close on the REO property and then IMMEDIATELY turn around and sell it to another investor, end buyer, etc.
NOTE: You DO have to have the money to close on the first half of the transaction. (There are a number of ways to get funds for this type of transaction including local hard moneylenders). THIS is the part that make the simultaneous closing LEGAL.
In other words, you find a hard moneylender that will loan you the funds for the ENTIRE purchase price of the property. Generally, they will charge you a few percentage points for use of the money. Immediately after YOU purchase the property, you turn around and sell it to the buyer. Both transactions literally happen within minutes of one another.
Myth #2: You Need Cash to Make Offers on REO Properties
This REO investing myth is also, fortunately, false!
You don’t need to have 100s of $1000s of dollars sitting in your bank account to be able to make offers on REO properties, even if you are making all cash offers!
Think about this… if ONLY people that had cash in the bank were able to buy REO deals, then the banks would NEVER be able to sell all their inventory!
There are several alternatives. For example:
There are private lenders that will loan you the cash AND provide you with proof of funds letters to make your offers if you DO want to make cash offers on your REO properties. In many cases, you don’t even have to show a bank statement.
In other cases, you may choose to close on REO properties for your own long-term investment portfolio. In cases, like this, you would simply provide a pre-qualification letter from either a conventional lender or a hard money lender.
The bottom line is that the bank just simply wants to know that the person on the other end of the offer is in a position to buy the property if they are able to get the contract approved.
Myth #3: REO Properties Are Overpriced!
Another common misconception is that REO properties are overpriced.
While that may be true in some market cycles, for the most part… right now, REO properties can be pretty incredible deals. So, if you tried to invest in REOs a few years ago, you may have run into instances where you were paying full retail if not MORE for an REO property.
However, right now, REO property accounts for some of the very best deals out there. They’re taking discounts that were absolutely UNHEARD of just a few years ago!
For example, we recently came across a deal that was originally listed for $149,000. When it sold MONTHS after it had first been listed, it went to an investor for $30,000. The current market value was around $120,000 (that was the after repaired – CURRENT MARKET – value).
NOTE: Too many times, people try to value a piece of property at what the person bought it for several years ago! You need to ALWAYS look at TODAY’S VALUE!
THE LESSON: Don’t be afraid to make low ball offers, especially on an REO property! You never know what the bank will accept at any given time.
Myth #4: REO Investing is Complicated
Generally speaking, people think that when you’re forced to deal with lenders that the deals are complicated!
This is not the case… REOs are pretty simple if you think about it.
- There aren’t a lot of moving parts.
- There’s not a lot of “creative” structuring.
- There’s no negotiation!
The person approving the sale has NO emotion tied to the property. They simply have a job to do and a property to sell!
REO investing comes down to straight numbers. It’s black and white.
The deal either works or it doesn’t.
And if it doesn’t work… move on or try again in 30 days.
REO investing is probably one of the simplest ways to get started in real estate.
