Buying Bank-Owned REOs: 5 Tips for Getting the Deal

Buying Bank-Owned REOs: 5 Tips for Getting the Deal

Buying bank-owned real estate, or REOs, is a great way to grow your real estate portfolio and get terrific deals.  Across the nation, there have never been more properties that have been foreclosed on by banks, ready to be purchased.  Often times, they can even be purchased at a significant discount.  Finding the deal, however, is only part of the challenge.  Because foreclosed properties can often times be purchased at a big discount, they attract a lot of potential investors and bidding on them can be a very competitive process.

In a competitive buying opportunity, you must set yourself apart from the competition.  There are definitely some tricks to winning the bid when dealing with bank-owned REOs.   By making a few key adjustments to your offers you can significantly increase the odds of being the “chosen” buyer and making a ton of money.

5 Tips for Buying Bank-Owned REO Properties:

1. Consider bigger deposits – Banks love big earnest money deposits.  They take them as a sign of the seriousness of the buyer and the likelihood of them being able to close the deal (whether that is accurate or not).  Consider putting higher deposits into your offers.
2. Put down “Hard” money – Banks prefer to see your earnest money deposits go “hard” as soon as possible.  This means that they become non-refundable and again show them that you are a very serious buyer.  I don’t recommend putting down “hard” money until you’ve done the due diligence or are near 100% certain that you are going to close the deal.  Remember, it’s money you risk losing if you don’t purchase the property.  I have personally seen investors lose a deal and up to $100,000 in deposits because their closing fell through.  Don’t let this be you.
3. Close quickly – One of the biggest fears of a bank when picking a buyer is that you’re not going to be able to close.  Once they’ve made the decision to sell, they want it done quickly.  By putting quick closing timeframes into your offers you can set yourself apart from offers with more conservative closing timelines.  You can sometimes even win a deal with a lower offer price if you close quicker than your competition.
4. Ability to close – Again, banks want to make sure they select a buyer who can close.  They don’t want to have to remarket the property once they’ve taken it off the market, costing them time and money.  Anything you can do to demonstrate your ability to close the transaction is a major plus in their eyes.  A few ways to do this is by showing “proof of funds” to close, showing them your experience, and providing references.
5. Work directly with the bank or listing broker – This isn’t always a possibility, but when you can it’s always better to work directly with the bank and buy the property before it even goes onto the market.  To do this you must establish great relationships with the banks that have the opportunities and become their go to person.  If you don’t have a relationship with the bank, the next best thing is to work directly with the listing broker.  By doing this, you will have an inside track on the investment and they won’t have to split their commission with another broker.  In my experience, if you have anywhere close to the same offer as another buyer, but are the only one working directly with the listing broker, you’ll get the deal (amazing how that tends to work out).

Buying bank-owned REO investment properties can be a great way to grow your portfolio.  You can often you can get deep discounts that turn into huge profits.  However, there are some keys to being the chosen buyer in a competitive buying situation.  Putting down bigger deposits, making the deposits go “hard” faster, demonstrating your ability to close and close quickly, and working directly with the seller or the seller’s broker can put you in the driver’s seat.