My Solution for Bank Owned Foreclosed Properties (REO's)

Real Estate Agent with RR and Company Realty, LLC /

I read this today:

Freddie could take more than a decade to unload REO inventory

and thought, "Ugh, really?"

If asset managers of large institutions got wise, they could responsibly unload a number of these properties to value oriented investors, rehabbers, and property managers.  In this market, there is no shortage of savvy investors out there looking to build their portfolios up with discounted properties.  REO, short sale, pre-foreclosure, you name it.  Some of these companies/people are pillars of their respective communities hoping to bring back the local lustre.  They're endeavoring to rebuild neighborhoods, houses, and even provide affordable housing solutions.

Why not help them in the process?  Here's some ideas we can get behind:

  • Loosen up the lending guidelines on distressed property.  A minimum of 20% down, plus the necessary capital to do serious rehab work?  You're asking an investor to gamble with a significant amount of cash.  Not to mention the property may not sell for full retail (due to continued pricing pressure from other foreclosures and short sales.)  Why not lend up to 100% of the sale price, and let the buyer preserve his or her capital for improvements and rehab?  Or lend 80% of the sale price and a line of credit for the rehab work?
  • Hire qualified rehabbers/investors/property managers to rehab and/or rent some of these properties out.  Turn it into an actual asset (real assets make you money.)  A rehabbed or rented property will command a higher sale price, be more attractive to a larger segment of the buying population, or at the very least stave off further depreciation.  Retain ownership until the asset is performing, then attempt to sell it.  It's a very viable investment strategy for a REO laden institution looking to improve its balance sheet.
  • When ordering a broker price opinion (BPO), ask the agent to do a typical current condition BPO and a "Rehabbed or Rented BPO."  Followup with some contractors bidding the requisite work to make the property habitable.  Package the property for sale at the Rehabbed or Rented BPO with the requisite work being done by the bidding contractor(s) prior to closing.

We've been fortunate to handle a number of REO, short sale, and even some pre-foreclosure sales and worked with owner occupants and investors.  The reality is that many of these properties are so run down and distressed  that a typical owner occupant may be biting off more than he/she can chew.  The scope of the project is vast, the requisite capital to do the job correctly is immense, and the time committment is often underestimated.  So why not make these properties more marketable to the average buyer?  Why not empower the investor type buyer to do more business each year, bringing distressed properties back to life?

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