In almost every market, finding REO deals is a constant challenge. Price is an important factor, but in some cases it may not be the ultimate decision maker. Even if you have the highest offer, it may be disregarded if your offer is lacking in other areas.
With so much competition out there, your offer needs to be perfect the minute you decide to submit it. You may not have a chance to make corrections and re-submit. And to push your offer to the top of the pile, you need to think like a lender and focus on what they are looking for. (Not just what you want out of a deal.)
So, here are five tips for finding more REO deals and boosting your investment portfolio.
How to Find REO Deals
1. Updated proof of funds letter
Unlike with traditional sellers, it’s rare that a bank will accept an offer for an REO property with lender financing. They have often been burned too many times by offers that never close and drag the process out for months. Instead, they usually focus on cash offers.
The starting point for your REO offer should be a proof of funds letter. This is the document or statement showing exactly where your closing money is coming from. It’s important to make sure your money is in a liquid account, that you can draw from at any time.
Most investors keep a proof of funds on their laptop or somewhere they can quickly retrieve it; but this letter needs to be updated before submission. A proof of funds letter dated two months ago does nothing to improve your chances of acceptance. Make sure this letter shows enough funds to cover the transaction, and includes the date of your submission.
2. Review your contract
When hurrying to get your contract submitted, it can be easy to omit certain items. Even one missed signature or initial can cause your offer to be pushed to the side.
The contract you submit will be reviewed by the loss mitigation department, line by line. Double-check that the name you use on the contract is the same as the one on the proof of funds letter. Find out before you submit if you can close within an LLC, or if it has to be a personal account.
You should also look for all signature pages and make sure everything is dated properly. There are other important items on the contract such as closing dates, contingencies and down payment amounts, but unless your contract looks clean, the person considering your offer will never get to those.
3. Close quickly
Aside from price, the most important consideration for lenders is the closing date. Every day they own a property it is costing them money. They want the liability off their books as quickly as possible.
Unlike traditional purchase transactions that last 45-60 days, REO purchases should close in a week to ten days. A speedy closing date shows that you are serious about the transaction and ready to act.
Lenders will often take the path of least resistance in getting a property sold. This doesn’t mean you should offer ten percent less than you would, but a quick, cash closing does have value. You need to be ready to act and close as quickly as possible.
4. Large down payment
A cash offer and quick closing is typical in today’s market. To make your offer stand out, you need to increase the down payment amount on the contract. The typical 3-5 percent you put for other properties may not be enough to get it done.
If you bump the deposit up to 10 percent, you show the lender you are serious. Knowing that you stand to lose more money, you have more incentive to keep the deal going and close as quickly as possible. If all other things are equal, a larger down payment may just be the thing that pushes your offer over the top.
5. Fewer contingencies
One of the surest ways to get your offer accepted is to waive the inspections. This, however, is not for every investor and may not fit in your comfort zone. Before you consider this tactic, you need to have the property inspected by someone that knows what they are doing. You may have bought a dozen properties, but all it takes is one oversight to find yourself in a purchase you regret.
By waiving inspections, you can close virtually overnight after acceptance. Doing this is a risk for a buyer because they have no recourse if something pops up after the closing. Because of the risk factor, you may be able to get a reduced offer accepted. If you know what you are doing and are comfortable with the risk, waiving contingencies will definitely give your offer a leg up.
Closing in On the REO Finish Line
Every investor is looking for those magical REO deals that will help them buy an under-valued asset at basement-level prices. But finding the REO property is just the first step, you have to bullet-proof your offer to ensure it’s competitive and as attractive as possible.
This may mean putting more of a down payment than you feel comfortable with. Or reducing your closing, even doing away with the inspection. But if you’re able to put yourself in the lender’s shoes and provide them what they need, you might just find that winning REO deal before you know it.
