on March 30th, 2010
No matter your level of experience beginner or old timer you probably wonder what exactly are bank owned REO proptery managers thinking when they negotiate a deal. I have come to realize from the many offers I have made both successful and unsuccessful that banks don’t need to sell. Contrary to popular belief banks will not be giving away a house for insanely cheap anytime soon. This isn’t to say you can’t get a great deal though.
Here are some rules that I personally follow. They might not be correct, but they have defintely steered me in the right direction on more than one occasion.
1. If a house comes onto MLS and is priced aggressively(it is priced well below Full Market Value) you should jump on it with a full price offer. Over the years when I have seen a new REO listing that is a great deal I don’t hesitate in making a full price offer. Yes, I would love to get another few thousands off list price but when a deal is a deal don’t hesitate. I remember one house in particular that was priced very low. I am a night owl and it didn’t pop onto MLS until about 3:00 AM. I just happened to be scanning that area and saw this huge price discrepancy. I instantly wrote up a full price offer with zero contingencies. At 8:00 I drove over to the house to inspect it. This was a winner at the list price. I went directly home and faxed over the offer. The bank accepted it even though an additional 12 offers came in to the agent after mine. Just to tell you how good of a deal this was I turned down an offer 50k higher than what I paid in as-is condition. Once again if it is a smoking deal act right away.
2. Don’t expect the bank to take 50% less than what they are asking for a house. I hear stories all the time about the guy making 50 offers a week. He is truly wasting everyone’s time by doing this. I make on average maybe 2 offers a month. Most of my offers are within striking distance of the asking price. For example. Let’s say the bank is asking 100k and it has been on the market for 100 days. The bank is much more flexible in their price now. If it was a fresh listing you might be able to get the house for 90-95k. Since it has rested on the market for so long the banks regulations start to loosen a bit. You might be able to get this house for 75-80k now that it has sat for so long.
When you make an offer your goal is to be in the range that the bank will even consider accepting or countering. My goal is always to make an offer that allows the bank to at least counter my offer. I know that if I can start a negotiation I can usually get the I want for the amount I would like to pay.
3. As mentioned before days on the market is a huge factor in the bank deciding if they will be more aggresive in taking a lower offer. I use this always in my decision on how I should bid on a house. If a house is new to the market I will not even consider making an offer 20% off asking price. I know it is just going to be a waste of time. Now 10% would probably be an acceptable discount.
4. So you make an offer and the bank counters at full price. Should you just give up or try again? I know a ton of people think when the bank does this they should just walk away as the bank cares nothing about negotiating. When this happens I always go back with about a 1-3k increase in my offer. This almost always starts the ball rolling in the direction I want it to.
5. Never offer the full amount you are willing to pay. Offer a few thousand dollars lower than what you want to pay for the house. This will allow you to increase your offer during negotiations and show the buyer that you are very interested in the property and willing to come up in price. You will often get the house for less than you want to pay by doing this.
6. Keep out all the contingencies. Real investors are either paying cash for the house or dropping all contingencies. I remove all contingencies and offer a huge earnest money deposit. My current EMD is about 10k and I think it really makes the bank happy seeing you are willing to deposit so much up front cash. They know when they see this that you are a serious buyer and not going to mess around. If you are a big baller and have the cash don’t hesitate to offer to put the entire purchase price in the form of an earnest money deposit. So if you offer them 50k also put the 50k as a EMD. Banks love seeing this kind of thing and you will often get a huge reduction in price by doing this.
7. If you have the cash you will get a better deal when dealing with REO’s. Banks love to see cash offers. It just makes their lives a 100 times easier. I have lost out on deals when I offered them a financing contract and the cash buyer offered them less money and was going to pay cash. I have seen the bank accept $1500 less cash offer than I was willing to pay. They love cash offers. The bank will gladly accept a little less cash knowing they will have much less work to do and less risk of the house going back on the market if the financing falls through.
The managers of REO bank owned houses think without emotion. They can easily remove all emotions since it isn’t their money. This puts them in a great negotiating standpoint. If they mess up a negotiation who cares. They can just sit and sit and have the house on the market a year without any regard. Keep that in mind the next time you make an offer on a bank owned property. More than likely the manager of the REO has a certain guideline he must follow when negotiating. He always knows the % amount he can lower the property and must stay within that range. Sure he wants to get as much as possible but he will also settle at the bottom of that range. The manager wants to do the thing that is easiest for him, which is usually not the thing that will yield the bank the greatest return.
on November 10th, 2009
How in the world did I come up with the idea of buying an apartment complex? Well I consider myself an opportunist. If a good opportunity presents itself I will consider making an investment. It doesn’t just have to be real estate. If I come across a huge invetory of products at a steep discount I might consider purchasing it. If a business pops up for sale that I think I can turn around and sell down the road for a nice profit I would highly consider it. I have gotten into the habit of browsing the business section on craiglist lately. I go off into tangents when I don’t have any real estate deals happening. As an investor if you aren’t putting your time or money to work you are losing money. When I don’t have any deals taking place I often look for other deals outside of my main money niche. So this brings us to craigslist. I like to puruse through there seeing if anything strikes my fancy. For example a Quiznos popped up the other day that the owner was only asking 44k. I contacted him and he seemed responsive but all the sudden fell off the planet earth. Who knows if he was serious but for 44k it sounded like a good idea.
Alright back to my point at hand. I was browsing CL and I stumbled upon an apartment complex. It was about 80 doors and they were only asking around 800k. Without any other knowledge this just seemed like an amazing deal. Usually when you have little to go on other than those two figures in real estate there is a catch. Usually the catch is something like the property needs an insane amount of work, or it backs up to a railroad track, or it is next to a crack house, etc.
Now before coming across this I have never considered buying an apartment complex. The thought has seriously never once crossed my mind. I do a certain type of investing because it suits me. I don’t have to deal with anyone, heck I don’t even deal with the end buyer. I just list the house on MLS and have a buyer’s agent locate the buyer. In my entire real estate investing career and even dating back to years before I got started when I tried to get started I never liked the idea of being a landlord. I despise the thought of it really. Hence the reason I have never thought of buying an apartment complex let alone a single family house to rent. There was something about that apartment deal that changed my outlook. That one thing that changed it was something we call Money. It just started racing through my head. I could just see these piles of money floating out of the sky. I wanted it.
I start looking into this deal and running numbers. What is 80 times $500 a month? Ok that number comes out to 40k a month in revenue. How much would a loan be on 800k at 7% interest? Ok that number comes out to 5k. WTF am I missing something? This deal is a no brainer in the making. And here begins the wonderful journey into learning everything there is to know about apartments and investing in them.
When I got started in real estate I had time on my side. I got the bug and knew I wanted to flip houses. I had half-heartidly tried to get into investing a few years prior to when I finally did enter the market. I didn’t really try very hard and I guess just didn’t have a huge interest in it. It was the reason I didn’t pull the trigger. Fast forward though and this time I had an interest. I was blowing through my savings. I had lived the previous two years just living it up without any income. It was a great lifestyle one I highly recommend if you have the ability. Two things rapidly changed this scenario for me though. I loaned out 30k to a family member and I invested another 25k into a business venture. Bam there goes 55k at the drop of a hat. I was quickly depleting my life savings and had no choice but to replace living off savings with an actual income.
I got the bright idea that I would buy a condo and it would cost the same as my rent was costing. I would find a good deal on that condo and it would be my first chance to get into real estate. I came across a condo that I thought was a very nice deal. Hindsite tells me it was actually a horrible deal and I would have lost a ton of money on it. Thank goodness I didn’t buy that money pit. I did however quicky buy two single family homes with a partner and it was the start of a beautiful relationship with real estate.
See what I said about tangents. I swear the older I get the more ADD I get. It seems to be getting bad these days even though I never remember having it up until just recently within the last couple months. Alright so with all that time on my side I studied my butt off. I learned all you could by reading. There is only so much education you can get from reading though. The way I can describe it is like this. You can read all you want about investing and you will probably get a high school education. You will get your undergrad degree from doing your first deal. That is how important it is to actually go get a deal under your belt. This is when you really learn about investing in real estate.
I have no doubt buying an apartment complex will be much the same. The only difference is I am finding it very difficult to find great information on buying apartment complexes. I went to the bookstore today. There must have been 200 books on investing in houses. There was “ONE” book on investing in apartments. And I have to tell you I sat there for 30 minutes and read most of that book. I learned very little from it and while I felt a bit guilty for sitting there reading it I was happy I did not purchase it.
It is good and bad that there is little information on apartments. The bad side is it will be harder for me to learn what I need in order to make a purchase. The good side is the entry level is much harder for your average person. This means that there is more than likely less competition going after deals. So in theory if I work hard I should be able to find really good deals.
Alright so as I investigate into this apartment deal further I quickly realize it is already under contract. This guy just posted it on CL and it was already under contract? This greatly annoyed me as the guy was clearly just trying to drum up a buyer list or something. I did however learn that this apartment was vacant and boarded up. So I am guessing not only was it 800k to purchase you were probably going to have another $500,000 to $1,000,000 in additional investments repairing the place and bringing it back to life. Then you have the duty of leasing all the units. This could probably still be a good deal and something you might make a small foture on if you do it properly.
That was probably a few weeks ago when I came across that and I have studied a lot since then. I need to start a plan and put it into action in order to move forward. I will talk more about that later.
