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Columbus Banks to Tackle Rehabbing REO

Columbus Realtors grab your tool belts. It looks like the new job in town for REO professionals is called Rehab. I'm not talking board ups and trashouts here folks. We are talking new roofs and all. I'm talking about Realtor = General Contractor. Lucky for me I have been a GC, done rehabs and built houses from the ground up. So have some of the agents working for our brokerage division.

According to Business First Newspaper this week, "Several small banks have decided to repair and rent out the homes to boost their value." As a full service asset management firm in central Ohio, this brings a whole new level of work to the area.

Actually, this discussion has been going on for some time with our clients. My first reaction was "You are kidding, right?" The answer was no.

I guess I just see a lot of liability here. Most rehabbers will do a lot of the work themselves or hire out to non-licensed people. They do a good job most of the time, but the words permit and insurance are not in the vocabulary. Licensed companies are higher cost. Higher cost is not what my clients want to hear, or so they tell me. I can't see that this approach is going to be a good idea for community banks.

Now let's think about the tenants for a minute. I have been an owner, asset manager, broker and property manager in multiple locations including Columbus Ohio. Tenant and property management is not easy. Low income management is tougher. All of the properties contemplated in the article are, you guess it, in low income areas. Some of the problems include increased repairs, slow pay or no pay on rent and, my favorite, suing the landlord. You know who gets sued? People with money. What do banks have?

The banks see this approach as giving something back to the community and trying to solve the problem, at least on their properties. It is commendable. If you ask me though, it is a very slippery slope and the deck is stacked. A bank can't use unlicensed contractors. A bank can't skip the permit. A bank can't say no to a repair. After all, this is as much about good PR as it is about loss mitigation. If you turn one screw Mr. Bank, be prepared to turn them all.

So the die has been cast. Now that it is in the newspaper, my current client base is going to call to discuss it. Every time I think I am out, they drag me back in!!!!

Richard F. Kruse is the President of Columbus, Ohio based Gryphon USA, Ltd. (www.gryphonusa.com). The Gryphon Organization includes Gryphon Asset Management providing receivership and consulting services in the distressed marketplace, United Country Ohio Realty & Auction Group (www.ucohiorealty.com & www.ucohioauctions.com) providing real estate brokerage and auction services throughout Ohio and OnlineAuctionUSA.com (www.onlineauctionusa.com) providing commercial asset liquidations from the Midwest to East Coast.

United Country Ohio Realty & Auction Career Opportunities Available. Call 614-885-0020 x 17

Posted by Rich Kruse on 03/01/2008 09:04 AM

Comments (14)

reo, asset management, columbus, ohio, bank, tenant, property management

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14 Comments on Columbus Banks to Tackle Rehabbing REO

MAR

2008

"Realtor = General Contractor"God help us! Very few have your experience.

Lets hope the fed stops this non-sense. Banks aren't supose to own non-business property, REOs are a no-no to be disposed of in a timely manner. More to the point do we really want Banks owning and controlling large tracks?

Better would be a plan to offer financing to potential home owners including supervised release of rehab money. A similar program for investors, could make rentals available.

It must be nice to have clients dragging you to business! It's a tough life!

Bill

Hello Rich

Interesting information. That is truly opening a new can of worms. I am up north here in the Akron/Cleveland area and see a great deal of REO also. We are pushing the FHA 203k/203Streamline for the owner occupants to acquire and rehab with one loan. Also we have the Fannie Mae Home Style rehab product for the investors. I have some agents actually offering the REO's as FHA 203k QUALIFIED in the MLS remarks which helps. Great way to get more buyers into these properties.

http://www.gsgroupinc.com/fha203k.shtml

Well Bill, I would rather have them dragging me into other things or maybe just let me sit on the couch for a minute. This is a situation where we are going to do it, but don't think it is a good idea.

I agree with your comments about the financing, but the banks have already been burned with lending. Now it is my job to make sure they can limit their risk in rehab and landlording.

Steve,

Like I responed to Bill, the best answer here is to figure out the lending and sell the properties. The goverment programs are a good start.

Talk about major liability! Granted, I am admittedly a total "girly girl", even if I was able to do general contracting work, there's no way I'd sign up for that kind of liability. And it never ceases to amaze me, how many people would rather save a little bit of money, than hire someone who is licensed and insured. I see it in houses all the time. Then the home seller who is so proud of his handiwork is shocked when the home inspector finds problems with the work that was done. D'oh!

Not me Rick...I cant get that involved any more...A house I was dealing with was in rehab, and no permits of course, my buyer did not want un permitted work , and a win win situation was shortly trashed...All these shortcuts end up costing me my time and my money...Good to see ya posting again Rich

Lisa - This is all a stretch to minimize the loss for the bank. Unfortunately, the long term issues are not being looked at.

Mike - I am just going to charge for it. Simple. As for posting, I have been doing much more trustee work and not a lot of agent work lately. I woke up one day and realized I'm in management. Weekly meetings and oversight.

Hey Rich,

Most of the REO's in So Cal is sold but the options are asked by the bank during the BPO. Here is the land of "pick up labor" and horrible craftsmanship due to the low prices offered by the next Joe. Contractors using untrained labors for work under their lic. for every type of construction related job. I can't imagine the bank letting that happen here just because of that reason...

But if that happens then I'll get my GC lic. and go with the times. I'm use to building with weather conditions like yours... constant work with no rain/snow delays. LOL

MAR

2008

As a business man and leader in my church, I was approached by two gentalmen that have well over 30 years of local rehab experience in the central Ohio markets. Just recently, we have started a REO flip organization that caters to this issue. We decided to offer maintenance for the vacant properties, purchase the properties that have favorable location for rental/sell and create a property management organization for our own rental properties.

I am now working closely with a mortgage organization with plenty of product available. As we move forward, I plan to extend our resources to other mortgage and bank organizations in order to have a larger scope of product. I have found that 0.50 on the dollar allows us to keep our financail risk at a minimum, enhance the property back to useful and strive to pull a profit. As for rental clients, I have found a great pool of prospects that enable us to secure 50% or better reliability for timely payment. This seems, at our early stage, to be my greatest challenge.

It looks as though this industry is looking for simple answers. There aren't any other than hard work, trust and doing things that are not common to your day.