I deal with clients every day who only want to buy bank owned properties due to the attractive rate of return they can achieve. Bank owned properties are different than your traditional resale or new construction home and it’s best to understand what it takes to make a deal like this work before attempting to jump into this market.
I have compiled a list of how bank owned deals work— I have used this method for many years and it has worked for my clients time and time again. Keep in mind that as the market continues to get better the banks will accept offers closer to their list price. There are still some great deals available, so take advantage now while you can still purchase bank owned properties at a great price.
If after reading this you’re ready to take the leap into the bank owned market simply email me or call today.
What You Must Know About Investing In Bank Owned Properties
- Work with a Realtor experienced in working with bank owned properties. There is a nack in working with banks and not every realtor understands this. I have been doing bank owned deals for many years—in fact one out of every 3 deals I do is a bank owned deal.
- Have your proof of funds ready–you will need proof of funds when you submit your offer. You can use a bank account balance or a proof of funds letter from a hard money lender. The amount or balance will need to cover the purchase price. If you are going to finance, you will need a pre-qualification letter from your lender.
3.Looking for properties that have been on the market for a significant time due to the condition or the price. Banks will tend to deal on a property that has been sitting on the market over 30 days.
- Have a comprehensive market valuation of the property prepared. This is another job for your Realtor—as an investor this is key—you don’t want to pay more than you need to.
- I recommend offering 15%-30% below the banks asking price.If the property is in poor condition or has been on the market for 30 days or longer, your offer should be in the 30% range. If the property is in fairly good condition you should offer roughly 15% below list price.
To see the complete list click here: (Sean stick the entire list on the back end of our website)
- If you are going to finance, I would offer a $1,000 escrow deposit, 30 day close with a 10 day inspection period. If it a cash deal, I would offer 10% of the purchase price escrow deposit, 15 day close and a 5 day inspection period. A cash offer will usually have an advantage over a financed offer.
- When you submit the offer, I would use a 48 hour time for acceptance. I typically tell the selling agent that I have several offers in on bank owned homes and that my buyer is only buying one home.
- You will most likely get a counter back from the bank. I would expect a counter, don’t get discouraged. We may counter a few times before they except our offer and we may go through this process on several properties before we find the right property at the right price.
- If you counter with a second offer make it your best and final offer. At this point I always remind the listing agent that my buyer has several offers in and that my buyer is only buying one home. Of course the listing agent is going to say they’re expecting other offers as all agents do. They may or may not have other offers. We need to stick to our game plan and move on to another deal if this one doesn’t work.
- The bank may counter our best and final number. If the bank does counter, you may want to increase your offer by $1000 and that’s it. If the bank does not except your offer, be prepared to walk away. We can always keep an eye on the property. If the property has not sold in a week, we can always submit another offer and possibly purchase the property at a better price.
- If your offer is accepted, you will need to acquire an executed contract signed by all parties. Once you have acquired the executed contract you will need to open escrow and start your 5 day inspection. There are a couple of ways you can try to get an even better price on the property. You can have your contractor or handyman go through the home and list everything that is wrong with the property. Have the contractor or handyman write a formal bid and present the bid to the bank before the inspection period ends and ask the bank for a price reduction. The bank may or may not respond. Some banks will agree to the price decrease. This is just another way to try and get the best price possible. If the bank does not agree and the numbers work, I would close on the property.
- Close on the property and start your renovation. I have assisted most of my buyers with not only the purchase of the home but coordinating renovation bids and rehab work. If your not local you need to have a local contact keeping an eye on the work being done—making sure to do a final walk through with punch list before final payment for any work being completed.