Strategies for Buying Bank-Owned Properties for Cash
Coronavirus has taken a toll on the American economy and it will take years to fully recover from the pandemic. Though there are foreclosure moratoriums in place for now, those missed mortgage payments are ultimately going to catch up to a lot of homeowners. We don’t know exactly what other stimulus packages will be passed (if any), but it’s safe to say that we will start seeing more foreclosures and short sales in 2021 and beyond as part of the economic fallout from this crisis.
This is an unfortunate situation for many homeowners. This is a good situation for savvy real estate investors. We’re not advocating taking advantage of people in bad financial situations, but cash sales will usually benefit both sides if the homeowner is able to sell while still in mortgage forbearance or pre-foreclosure.
But what about homes that are foreclosed upon? How can you as an investor make the most of buying bank-owned properties (or real estate owned/REO properties)? How will cash be king in this new real estate economy that is on the horizon?
Buying a bank-owned property with cash is not really a different process than making a cash deal with a homeowner. The basic principal is the same. You, the buyer, are purchasing a real property asset from whoever currently owns the property (whether it’s the seller, the bank or the government in a tax default situation). Cash sales are quicker, cleaner and simpler than traditional sales that require buyer financing and a significant closing/loan approval process.
Advantages of Buying from Banks
Lenders particularly love cash deals because they are not wanting to hold these bank-owned properties for longer than necessary. A cash sale gets the house out of their hands and puts money back in their hands. There is less need for appraisal contingencies and funding complications without a mortgage loan to be finalized. The closing windows are short, which benefits both the bank and the buyer.
Here are some strategies for cash purchases of bank-owned properties:
First, you have to find the best bank-owned properties for sale in the market of your choice. Not all will be listed on the MLS and sometimes you have to get creative in your search. This may mean working directly with banks and lenders, aligning yourself with a real estate agent who is dialed into the local REO market or joining a home buying network like PropertyLark who will bring you excellent off-market deals.
As with all successful real estate investments, it’s vital that you run detailed analytics on the property. Whether you plan to fix and flip or buy and hold, you will want to crunch the numbers and make sure it is a worthwhile financial investment. If it is not, then move on. If it is, then you can consider making an offer.
Making the Offer
Banks are eager to get rid of bank-owned properties, but they are not stupid. They know the value of any assets they hold. You can still get a very good deal on REO homes. The properties are usually already priced to sell, so a super lowball offer probably won’t get the job done. Make an offer and find a price point that works for you and the bank to get the transaction completed quickly.
Understand the Risks
As with most cash real estate transactions, you are buying the property in as-is condition. Understand your risks and weigh the risks/rewards as part of your analytics process. Bank-owned properties especially will be sold as they are, so don’t buy something that is beyond your capabilities of renovating.
Be Prepared to Jump Through Some Hoops
Though the sales can be completed quickly when terms are agreed upon with the bank, getting to that point isn’t always as easy. This is especially true when dealing with large banks that will make you work a little harder to get a deal done. Just remember they are eager to unload these assets and will work with you. The initial steps may be a little complicated and slow at times, but it can be worth it in the end with a great purchase price and quick closing.
If you are a cash real estate buyer, then you will want to look into joining the PropertyLark home buying network. We identify great investment properties from distressed sellers, motivated sellers and REO sources to bring you exceptional off-market deals. You must qualify to join our network, so fill out the contact form and questionnaire on our buyers page to see if you are eligible.