Best Way To Finance Short-Term Loan For Rehabbing Real Estate What Are the Four Ways to Sell REOs in Real Estate Investing?

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What Are the Four Ways to Sell REOs in Real Estate Investing?

REOs (Real Estate Owned) are bank properties that have been deeded to the owner’s lender because of a mortgage or deed of trust. These properties are most commonly deeded to the lender through a deed in lieu of foreclosure, or a court action and resulting foreclosure auction. Once the bank controls the deed, they will begin marketing the property to get as much of their loan balance as possible.

It is estimated that investors buy 94% of all REOs while the remaining 6% are sold to end users who will actually live in these homes. Often, the agency that guaranteed the homeowner’s loan will also finance a new buyer if they plan to live in the property. The high investment rate for homeowners buying REOs is because most REOs need repairs that range from minor to teardowns.

Once an REO comes up for sale, an investor must determine their exit strategy even before buying it. This is because you will keep it or resell it; Either way, you must make money or you won’t be an investor for long. There are four exit strategies that an investor should choose from which include:

1. Wholesaling is the most common method of reselling REOs. Wholesaling is where the investor obtains a property under contract and resells it to another investor who will use one of the following exit strategies. Buyers of these properties purchase them from the wholesale investor with cash or hard cash, rarely is financing available from the investor-seller.

2. Rehabbing and selling to a retail end buyer is very common, but requires money to buy the property, transportation costs, repair costs, sales costs and some rehab knowledge if the investor does the work himself. This is where the biggest profits are when investing in REO. Again, these properties are purchased for cash from a wholesaler or lender’s asset manager; financing is rarely allowed.

3. Buy-to-let and leasehold property is a long-term strategy that takes a definite mindset due to the various issues of dealing with tenants. Using a management company is a solution to the owner’s everyday problems. Whether you buy from a wholesaler or asset manager, these are also cash transactions. However, a buyer can often obtain end-buyer financing through conventional lenders due to the cash flow of the units.

4. The rarest usage because it is not well understood by novice investors is called wholetailing. In this situation, an REO is chosen because it needs less than two weeks of patching and painting to bring it to a very acceptable move-in condition. It is then sold to a retail buyer who is charmed by the neighborhood, local schools, or some feature of the property. The benefits of these transactions can be as great as full rehabs, but the investor must be selective in purchasing the property in terms of cost and amount of work required. Kitchens or bathrooms are never replaced in these renovations.

In short, there are four very productive methods of making money investing in REOs. The key, if you are buying REO wholesale, is to know the after-repair value of the property and what your buyer will pay to make an expected profit on the deal. Generally, Rehabbers pay more, Owners pay based on cash flow only, and Wholesalers look for special features and minimal rehab work, but they should pay a premium for these properties. Know your final buyer before buying an REO and make sure you have a solid list of buyers to market the property as your best exit strategy.

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