Buying Bank Owned Props? R.E.O.’s Anyone?
By Craig on Jul 19, 2008 in Featured Article
About two weeks ago, a bank accepted our offer on my newest rehab project, “to be.” My new baby. The house is in Columbia, MD. Strangely enough, this property sat on the market for a staggering 588 days. Maybe it was pure hubris on the part of the bank, or perhaps it was the very picky REO agent. Whatever the case this REO, is mine now - but I must tell you buying an REO is no walk in the park.
CONTEST ALERT! The first person to tell me the significance of the above picture will get a free lunch with me. (You must be local to Baltimore)
For you beginners; a house becomes a bank owned property following the foreclosure auction if there are no bidders to outbid the bank. Once the bank reclaims the property, it is considered, Real Estate Owned (REO). This, by the way, is a very boiled-down definition. If you are planning on getting in the game with REO’s, just know that you purchase them As-Is, with no contingencies. Banks want to deal with serious buyers not tire kickers. Write “clean” contracts with high earnest money deposits to separate yourself from the herd.
There are ton of REO properties on the market right now. Its a numbers game, but if you make enough good offers, a few will be accepted or countered. Patience and persistence is key, but like a cobra in waiting, you also have to know when to strike.
Back to my rehab: The house (see below); a 3 BR / 2BA house is in a nice, circa-60’s neighborhood of Columbia. Its a weird, chalet-style, single-story Columbia house and it needs heavy cosmetic rehab. I’ll have more pictures and all the details of the rehab in the coming weeks - stay tuned!
So why did the bank initially list the house at $299,000 when its current market value is only $336,000? My guess: The REO agent led the bank to believe that he could market the house in its current condition to a retail home-buyer. Uh….right! There was no way in hell that Joe and Jane Homebuyer would have EVER purchased this property in its current state. The agent was wrong! So the house sat.
The bank then played the reduction game. From $299,000, they dropped to $279,000. Nada. From $279,000, they dropped to $249,000. Queue the crickets! Nothing. Oh, and did I forget to mention that at some point the roof sprung a leak? So now the bank is dealing an undesirable house with mold.
TIP: Banks really hate mold. Mold grows in hot, dark houses that have moisture. Often, the first step for the bank when they reclaim a home is to turn off the utilities, which would include (you guessed it) the sump-pump. Then the spring rains come, as they did this year - and viola, you’ve got a lot of flooded basements. Mmmmm….can ya just smell the money? The best time to find moldy houses is right now!
The the PRICE DROPPED TO $229,000. And like a vulture coming into to strip the carcass, I faxed in my killer offer just minutes after the price change….
More juicy details to follow!
*** For now, here’s a great story from InmanNews for folks wishing to buy REO’s
Popularity: 95% [?]
17 Comment(s)
By Vern on Jul 19, 2008 | Reply
Craig,
That’s too easy. REO Speedwagon! A rock band!
By Pete Coyne on Jul 19, 2008 | Reply
Hi Craig,
The Significance of that picture is that it’s the cover photo from REO Speedwagon’s 2004 Anthology Album/CD “The Essential REO Speedwagon”. Great deal on the Columbia House. Were you able to get it below 229K? Either way, sounds like a steal! I’ll have to drive by it, one day soon.
-Pete Coyne
Elkridge, Maryland
By Kehl on Jul 19, 2008 | Reply
Nice move Craig! I picked up an REO from Indymac on Wilkens Ave and turned a $38K profit after a total rehab.
Kehl
By Robert B. McArtor, Marylandshometeam.com on Jul 19, 2008 | Reply
Hey Craig, sounds like a nice buy. Concerning the valuation the bank places on the property. Most lenders will get a second BPO to establish price. The difficult part for most Real Estate Agents is they do not know how to determine repair costs. Most I believe under estimate. This is why it sits and sits on the market. When it needs $20,000 in rehab…the agent told the bank $5,000. (Probably thinking paint and carpet and WOW!!..A BRAND NEW HOUSE!!) not ever giving thought to the 1961 kitchen, bath, appliances and HVAC. Looking forward to reading and seeing pics of the rehab.
By Ed on Jul 19, 2008 | Reply
My guess takes Vern’s and Pete’s a step further. Seeing 5 members of REO Speedwagon leads me to assume each of them represents $10,000 in projected profit for a grand total of hopefully earning $50,000 on this property. Or that Craig plans on trying to rock an 80’s hairband wig in upcoming posts and photos?
By Anton R. Stubbs on Jul 19, 2008 | Reply
REO - Real Estate Owned property.
REO Speedwagon!
By Dee on Jul 19, 2008 | Reply
Hey Cute Stuff:
Even an old lady like me knows the answer. Its NOT The Beetles - but the band’s name is REO!! I’m an REO agent now and can tell you, its NOT easy working with the banks.
By jp | REI Tips on Jul 21, 2008 | Reply
Sadly you all got it wrong.
The picture above is Craig and his friends about 2 years ago, hanging out in front of his mom’s house.
Craig’s actually the one towards the back with his hands on his hips. He lost all his hair and put on a couple pounds real quick.
Craig, I still want that lunch, even though I’m not local. I like samitches.
…jp
http://REItips.com
By Craig on Jul 21, 2008 | Reply
JP!! Ha. That is hilarious. I should pull out some pictures of my band days. I was the “front man” - so the picture above could not be me, as would have NEVER stood in the back! (And I was never that skinny.)
By Craig on Jul 21, 2008 | Reply
WE HAVE A WINNER! Details to follow.
I was a teen during the height of REO’s popularity - and I must admit, I was never a fan - with the exception of the song, “Back On The Road Again.”
Great tune. No surprise, Kevin Cronin was not the lead vocalist on that track. In general I hated his vocals.
By Craig on Jul 23, 2008 | Reply
Congrats to Nathan Schwaber. Young master Schwaber must be quite the night owl - as he chimed in (via email) at 1:22AM with the correct answer just a scant 62 minutes following the blog post.
Thank you all for taking the time to read and respond.
Nate - call me when you’d like to do lunch! It will be my pleasure.
Craig
By Vern on Jul 31, 2008 | Reply
Dang it!
I was already take Craig for every dollar he is going to make from that REO. I was going to order an appetizer, a before lunch drink, a main dish, a dessert, a after meal drink, and a coffee…….and I was going to order something to go.
Oh well…Craig will get to keep most of his money.
By Craig on Aug 4, 2008 | Reply
Vern
I’ll buy you lunch any day of the week, and yes - we can make it the Capital Grill if you’d like!
Craig
By Ann Fuhr on Aug 7, 2008 | Reply
Great blog, Craig.
By Craig on Aug 7, 2008 | Reply
Awe shucks, even my Mom chimed in on this one!
By KEVIN on Aug 18, 2008 | Reply
Craig Hi. I stopped pass your rehab on Sinbad PL. hoping to catch you there. I showed that very same house to a potential owner occupant one year ago before the roof went bad. They did not purchase because they thought too much work was required to move in right away. Anyway, I am puzzled as to how you feel you can spend 40K-50K on this rehab and you spent over 60K on the Violet ave. rowhouse. Are you using licensed contractor’s or handymen for labor? I hope you don’t mind me asking. I can not seem to get under 50K on a detached home and 30K-40K on rowhomes. Any suggestions?
By Craig on Aug 19, 2008 | Reply
Kevin
I could spend a few hours writing. Feel free to shoot me an email with your phone number and we can set up a time to chat at Sinbad.
Craig