{"id":5568,"date":"2017-05-05T07:00:40","date_gmt":"2017-05-05T11:00:40","guid":{"rendered":"http:\/\/camerondirect.com\/?p=5568"},"modified":"2017-05-05T07:00:40","modified_gmt":"2017-05-05T11:00:40","slug":"reo-properties","status":"publish","type":"post","link":"https:\/\/realestatewealthnetwork.com\/blog\/reo-properties\/","title":{"rendered":"How to Avoid Major \u201cBumps in the Road\u201d When Wholesaling REO Properties"},"content":{"rendered":"

Investor friends, here\u2019s a short yet interesting post that I think you\u2019ll appreciate. It, of course has great<\/em> lessons to take away...<\/p>\n

It dawned on me that you could benefit from hearing this story about how I got past a few bumps in the road when wholesaling REO Properties with an FHA-approved REO.<\/p>\n

You see\u2026 this could have turned into a complete disaster \u2013 with loads of time and effort lost and wasted. But thanks to some preparation and creative thinking, I managed to make it work.<\/p>\n

I want to share this lesson with you, so you too, can see that we all<\/em> will definitely encounter challenges, hiccups and even major obstacles along the way in our investing careers \u2013 but rather than get discouraged \u2013 we work through them\u2026 and we\u2019re better for them on the other end.<\/p>\n

The importance of a strong buyer\u2019s list<\/strong><\/h3>\n

Realtor friend and colleague of mine \u2013 an REO listing agent that I had worked with many times \u2013 told me about a bank-owned REO property before it went on the market. He wanted to know if I\u2019d be interested in the deal before it was listed.<\/p>\n

This was what I call a \u201cpre-list REO\u201d\u2026<\/p>\n

REO:<\/strong> You probably know that REO stands for \u201cReal Estate Owned.\u201d If a foreclosure property is not<\/em> bought at auction, it then reverts back to the lender and becomes an REO<\/em>. REOs are owned by banks.<\/p>\n

\"Banked<\/p>\n

Okay so\u2026this pre-list REO property needed only plumbing repairs \u2013 the pipes had frozen, which is actually pretty common in my area. We\u2019re talking minimal work, time and money to get the property up to par.<\/p>\n

So far so good.<\/p>\n

They were asking $72,000, and long story short \u2013 I got the deal for $60,000.<\/p>\n

Using my buyer\u2019s list, I quickly found an end-buyer investor who agreed to buy it for $75,000. Not bad! That would have been a nice $15k payday for me.<\/p>\n

But\u2026<\/p>\n

For some reason, which I\u2019m still not clear on, that investor backed out. But, I did get to keep the $2k earnest money deposit, so that certainly helped. However, that left me with a new problem.<\/p>\n

Now I had to find another end-buyer \u2013 and fast. But, I wasn\u2019t too alarmed...<\/p>\n

See, when I initially reached out to my buyer\u2019s list, I actually had 2 or 3 other investors who were also interested in the REO property. So I went back to those investors \u2013 and one of them had previously said he\u2019d give me $80k for the deal.<\/p>\n

So, I sold it to this back-up buyer for $80,000.<\/p>\n

The lesson here \u2013 don\u2019t panic, be prepared with a solid buyer\u2019s list.<\/strong><\/p>\n

I use the Cash Buyer Data Feed<\/strong> to ensure I have a solid buyer's list. This system gives you access to real, verified and active cash buyers in any market and gives you the confidence to go out and start making offers immediately!<\/p>\n

\"\"<\/p>\n

Flipping a property without the FHA flipping out<\/strong><\/h3>\n

Now, while very unusual for investors, it turned out that the end-buyer was working with an FHA loan. (Just in case math isn\u2019t your forte, that\u2019s a $20,000 spread: I bought the deal for $60k and sold it for $80k.) We planned to close fast, within a few days.<\/p>\n

FHA:<\/strong> Again, you likely know that the FHA is the Federal Housing Administration. It sets standards for construction, underwriting, and insures loans made by banks. It provides mortgage insurance on loans made by FHA-approved lenders throughout the United States.<\/p>\n

After I bought the REO property and fixed the plumbing, the house was then appraised for around $100k.<\/p>\n

Now, here\u2019s where this deal gets even more interesting\u2026<\/p>\n

The FHA actually wanted to know what had been done to the property to make it worth $80,000 - remember, I bought it for just $60k, which was a $20k difference from what I was selling it for. As I mentioned, we repaired the plumbing \u2013 that was pretty much it.<\/p>\n

So, I presented the FHA with the list of expenses. At first there was a little concern, but eventually it worked out based on the numbers, and the FHA gave their stamp of approval and agreed to proceed with the loan.<\/p>\n

\"REO<\/p>\n

I\u2019ll explain why in a second, but\u2026<\/p>\n

This could have turned south again, quickly<\/strong><\/h3>\n

After looking at all the numbers and the little bit of repairs that we did \u2013 the FHA could have flat-out denied the loan. At that point, I would have had to scramble \u2013 again \u2013 to find another end-buyer, all the while paying incurred property taxes and sitting on the deal.<\/p>\n

Thankfully, that\u2019s not what happened.<\/p>\n

Again, this is a lesson on why you should always have a healthy buyer\u2019s list at the ready.<\/p>\n

And here\u2019s why I think the FHA was quick to green light the $20,000 difference. It\u2019s simple, really...<\/p>\n

See, the FHA was okay with the difference simply because the property appraised for so much more than what I was selling it for. I was selling it for only $80k, but it had appraised for $100k.<\/p>\n

The FHA was comfortable with that\u2026 and you better believe I was, too!<\/p>\n

How does this impact you and your business?<\/strong><\/h3>\n

Now, you might think that the FHA asking for price justification is a new thing\u2026 but it\u2019s not.<\/p>\n

It\u2019s actually a typical request.<\/p>\n

The very first deal that I ever did in 1993 was an REO property that I bought, rehabbed and then sold to an FHA buyer. Well, even way back then, the FHA wanted me to justify why I was selling the property for so much more than I had bought it for.<\/p>\n

My point is, this request from the FHA is nothing new. You will possibly experience this situation for yourself if the end buyer in your deal brings the FHA to the table.<\/p>\n

And you might be wondering: \u201cHow does this affect me?\u201d<\/p>\n

Well, the bottom line is this...<\/strong><\/h3>\n

If you\u2019re wholesaling REO properties to another investor, you likely won\u2019t come face to face with the scenario I shared with you, at all, because investors don\u2019t typically have the FHA insure their loans. So this whole thing is pretty much avoidable if you stick to wholesaling houses .<\/p>\n

But remember, the trick is to sell cheap. Could I have sold the property for $100k like it was appraised for?<\/p>\n

Sure. But it would have likely taken longer. I was perfectly happy selling it \u2013 quickly \u2013 for $80k and banking $20,000 plus \u2013 the earnest money deposit the first buyer forfeited.<\/p>\n

What I\u2019m saying is - get that appraisal up, get the deal done quickly, and get out.<\/p>\n

And remember to maintain that solid buyer\u2019s list, and always \u2013 I mean always \u2013 have back-up buyers.<\/p>\n

If you have any questions or comments on how to wholesale REO properties, please feel free to leave any comments or questions below. I personally monitor and respond to them.<\/p>\n

Best Regards,<\/p>\n

Cameron Dunlap<\/p>\n

P.S. Do you have any \u201cbumps in the road\u201d stories related to wholesaling REO properties? I\u2019d love to hear it in the comments section below.<\/p>","protected":false},"excerpt":{"rendered":"

Investor friends, here\u2019s a short yet interesting post that I think you\u2019ll appreciate. It, of course has great lessons to take away… It dawned on me that you could benefit from hearing this story about how I got past a few bumps in the road when wholesaling REO Properties with an FHA-approved REO. You see\u2026 […]<\/p>\n