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    What Is An REO?

    An REO (real estate owned) is a property that a bank or lender takes to foreclosure auction that does not result in a successful sale from other bidders or investors.

    Several years ago, there were few REO’s because banks could sell homes for more than was owed against them, and almost never at a loss. There were always multiple bidders waiting to buy foreclosed homes. In recent times at trustee auctions there are far less bidders besides the lender, so the property goes back to the bank and becomes an REO also referred to as a bank owned asset.

    The vast majority of sellers are national banks and mortgage companies; however any institution or individual that has held a mortgage as a deed of trust on a piece of real property can foreclose on a property when the borrower is in default of the terms of the loan.

    When a bank attempts to sell a property at an auction, it has a preset minimum price that it will not go below, which includes: the loan balance, attorneys fees, accrued interest, and any other cost that’s due to the bank. If the preset price is not met, the property will become the bank’s property, which will be an REO property for sale.

    The vast majority of banks will hire a real estate brokerage to list the property for sale.

     

    A REO is a non-performing asset, or a bad debt for a bank. The bank is in the business of loaning money, and collecting interest payments- not managing real estate or selling real estate. There are limitations placed by the FDIC on the amount and length of time that a bank can own “other” real estate (REOs) before it must dispose of it. These restrictions give the bank a strong incentive to dispose of real estate it has obtained through loan defaults; however there are additional incentives.

    A bank’s rating is partially based on its balance sheet, meaning it is critical that these non-performing assets be “written down” or devaluated in value; or off the books entirely within a short time frame. This is particularly true at the end of the bank’s fiscal year, normally December 31. Even with substantial write downs, the bank or mortgage company will want to dispose of the property at the highest value to the bank, but with a very short fuse. The ability of a buyer to close quickly, with a minimum or complications and contingencies, will positively impact a greatly reduced price for an investor to purchase the property.

    A Short sale is when the lender accepts less than the loan amount (a discount on the loan) and releases the lien on the property at closing, without requiring the owner to make up the difference.

    Why Would A Bank Or Lender Accept A Short Sale?

    Banks usually lose less money by selling a home as a short sale, than allowing the home to go through foreclosures and become an REO. In most cases, the bank does not want the owner’s property, especially in this slow real estate market. It can cost the bank tens of thousands of dollars to foreclose, rehabilitate, market and sell a property, as well as carrying costs and realtor commissions. Banks know that they would never be able to make up the entire amount of the mortgage- if the property is taken all the way through the foreclosure process and put on the market as an REO.

    Wholesalers Overview

    Wholesaling real estate is not a particular type of a deal but rather it is a method or strategy used to purchase and sell a deal or property which will be done through the assignment of a contract (more on this in the course). Wholesaling real estate can be done with any type of deal such as short sales reo's probate and even for sale by owners and since your not using your cash or credit and your not actually taken title this allows you to do much more deals then if you actually had to use your money or obtain some type of financing and take ownership yourself.

    System Is Key

    A wholesaler focuses on developing two things, that's a system for finding deals, and a network of investors and buyers (end buyer) to sell or assign these deals to. A wholesaler is not concerned with contractors or material for the rehab or holding cost for the deal since they are not actually buying it themselves or taken ownership, there only focus is to get the deal under contract as if they were buying it themselves ,then sell or assign the contract (which controls an equitable interest in the property) as fast as possible to the best and highest bidder if done correct its a no risk and very profitable transaction or business for the wholesaler.

    It's All In The Numbers

    Here it goes, a wholesaler finds a fixer upper from a distressed seller or a seller that wants to sell a house or units thats in need of minimum to major updating or remodeling, lets say it has an After Repair Value (ARV) of $345,000 which is the dollar amount the property will be worth and should sell for after it is purchased and rehabbed.

    The wholesaler negotiates the seller to $225,000 for the purchase of that property, after a little back and forth the seller agrees so the wholesaler executes an agreement to purchase with the seller (which has certain clauses) to purchase that property for $225,000.

    To a newbie reading this their probably saying to themselves why would a seller sell a house for over one hundred thousand dollars less then it’s worth, well i can give you several reasons like foreclosure, job lost, divorce the list goes on, but one of the main reasons for the type of deals we focus on is it is in need of some type of rehab or repairs remember the (ARV) is the After Repair or After Rehab Value so the current “As Is” value is far less then the ARV value, most sellers have no experience and they are very aware of how expensive contractors can be so to them these numbers are a fair deal. Make sense? (Once you learn the InvestKept system it will all come together)

    The next step will be for the wholesaler to get the property under contract with the seller and have your prepared documents signed so the wholesaler can perform their job then escrow is opened and the earnest money deposit is in the deal is locked and binding (more on this during the course).

    It is now time to look at the numbers and decide what your fee as the wholesaler will be which is totally up to you it can be several determining factors involved on determining that number, for this lesson lets say its $15,000 which is an average wholesalers fee for a low to median priced home, this is the fee you will receive from your end buyer or investor for matching them with a property, this fee will be added to the purchase cost before you present it to your buyer it will be included through the sale so in your investors or end buyers mind its just the cost to buy the property the deal will be presented to them with your fee built in, although most investors would not care if it was a separate fee their only concern is the overall numbers at the end.

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    Put Your Money To Good Use, And Watch It Grow.

    It’s time your money gets what it deserves, A huge return on (Real Estate Investments), In Your Area where you can touch it and see it. It’s a fact over time everyones income decreases, giving even more reasons for safe profitable investments. InvestKepts motto is simple, the right property, the right terms, will get you the right return.
    We offer alternative investment solutions by allowing select individuals the opportunity to participate in as few as one or two local properties at a time or partner in with InvestKept on multiple income producing Real Estate projects currently in motion.

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    We Build And Enhance Wealth Through The Power Of Real Estate

    We believe every one should be a landlord and everyone should invest in a minimum of 1-2 properties per year to help secure themselves and loved ones financial future the unfortunate reality for most people is that Knowledge or the lack of, Fear of Uncertainty, Procrastination and the absence of a network of like-minded individuals you associate with will make this very difficult and for some next to impossible.
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    Income Property Investments

    Income Property Investments

    Put Your Money To Good Use, And Watch It Grow.

    It’s time your money gets what it deserves, A huge return on (Real Estate Investments), In Your Area where you can touch it and see it. It’s a fact over time everyones income decreases, giving even more reasons for safe profitable investments. InvestKepts motto is simple, the right property, the right terms, will get you the right return.
    We offer alternative investment solutions by allowing select individuals the opportunity to participate in as few as one or two local properties at a time or partner in with InvestKept on multiple income producing Real Estate projects currently in motion.
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