Inside Real Estate Investing
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You received a tape of REO properties. You’ve done an initial review and like what you see. The location is fine and the price is in line with your expectations. Now comes the time to make an offer to purchase. Depending on the types of deeds being conveyed will determine the purchasing process. Here’s a guideline of what you can expect.
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When a “seller” wants to make their profit on a spread (the difference between two prices), they do so through a pass through transaction. Simply put, a reseller has a contract with a principal seller at one price than attempts to resell it to an exit buyer at a higher price. In a nutshell, the transaction simply passes from the principal seller through the reseller to the exit buyer with all reps and warranties conveyed. Here’s how it works.
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Whenever I speak to an investor for the first time, I am always asked two key questions. First, am I direct to the seller and second, do I compile? The answer to the first question is yes but the answer to second question is no. There are many reasons why but the most important one is that unless you have a billion dollars, are an ex-banker with an extensive relationship to banks over a 20 year period, none of the banks or sellers will compile for you. This, of course, is a bit of an exaggeration but highlights the challenges of compiling.
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A buyer has reviewed the package and would like to submit an offer to the seller. The seller explains to the buyer that they have it under contract with the bank and will sign a purchase agreement with the buyer once they provide proof of funds. However, the buyer will only proof funds once the bank contract can be verified. The reseller will not provide any proof of contract until the buyer shows proof of funds. Buyer thinks reseller can’t proof the contract and the reseller thinks the buyer can’t proof funds. Neither party is willing to take the first step. Here lies the chicken and the egg.
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As the housing bubble inflated, the math increasingly favored renting. House prices went up and up while rents stayed relatively flat, meaning you could get a lot more bang for your buck by choosing a lease over a deed. Now, with the housing market in a pulp, the tables are turning.
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Say hi to Daisy. She’s hot! Now that I have your attention, this unfortunately is not the Daisy we are going to discuss today. Waaaaahh! We are, however, going to talk about the less sexy version of Daisy, her evil twin known otherwise as the dreaded daisy chain (egads!). This is absolutely the most frustrating aspect of buying and selling REO bulk packages. No worries. I’ve got you covered. I have a few tips on avoiding the daisy chain (but not Daisy).
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You just picked up a bulk REO package of 25 houses in Florida but you live in New Jersey. You bought them at a great price and you want to resell them. Now what?
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I often receive calls from buyers who are distressed because they have been trying to buy bulk REO packages but have thus far been unsuccessful. Find out why.
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