Buying Property

Low Ball Offers on Bank Owned Foreclosure Properties

If you’re new here (and you like what you read), you may want to subscribe to my RSS feed. Thanks for visiting! ScottWhenever I am working with a buyer and we are looking at bank owned (or REO) properties, the question always comes up:
“How low of an offer can we make on this [...]

Whenever I am working with a buyer and we are looking at bank owned (or REO) properties, the question always comes up:

“How low of an offer can we make on this foreclosed house”?

Just like many other things in investment real estate, it depends. Typically, a “normal” offer will be 95% of list price. I have seen offers accepted as low as 75% of list price. Much below that and the bank thinks you are simply low balling them and most often they will not even respond to your offer. Here is a list (in order of priority) of how I determine how to answer the above question when buying foreclosures:

1. Most often, time on market drives both the price and flexibility of the bank when looking at foreclosures. There are two components under this category that determine how aggressive you can be when making the offer on that bank owned property:
   1. Total Length of Time on Market-In other words, how long has the bank been trying to sell it. The longer it is on their books, the more opportunity you have to make an aggressive/lower offer.
   2. Time Since Last Price Decrease-This is related to the above Time on Market in that the longer it has been since the last price decrease, generally the more aggressive you can be with your offer. The converse is also true. For example: even if the property has been on the market for 9 months, if the price dropped 2 days ago, the bank is going to be inflexible when looking at offers much below the new list price.
2. The current list price relative to the market. The banks have Realtors perform BPOs (broker price opinions) on the houses periodically. If they just recently received a BPO and you make an offer at 75% of that BPO value, they are typically going to be unwilling to negotiate the difference. The number of REOs in a particular neighborhood may also help you as the bank realizes there are other opportunities out there.
3. How strong is your offer outside of the price? Leaving out contingencies, setting a closing less than 30 days out, putting down a larger earnest money check, paying cash, or declining the property inspection are all strategies that make your low-ball offer more attractive.
4. Often, the listing agent will help or hurt your chances to make a low offer. If the property is listed by a seasoned REO agent and it has been on the market for a long time, the agent will sometimes encourage the bank to simply dump the property. Maybe they have not received another offer on it in months or maybe the agent thinks the bank is keeping the price too high.
5. Your buyer’s agent can help or hurt you. An inexperienced investment property agent can hurt your chances of successfully buying a foreclosure at a larger discount. They do not understand the above 4 pricing variables.
6. Although I have never tested this, there is a belief that banks will be more flexible at the end of the month when they are trying to hit their numbers. They may give you a great deal simply because they need a few more houses in the sold category to look good to their bosses.

Ultimately, using a seasoned investment real estate agent is really the key if you are going to be a serious investor in bank owned properties. There are so many moving parts and dead ends with foreclosed properties, it is important for the buyer to have someone in their corner that can mentor and advise them.

Let me help you, I am a Minnesota Real Estate Agent with RE/MAX Advantage Plus. I work exclusively with investment property buyers in the Minneapolis and St. Paul areas and own 28 rental units myself. Investment Properties are my passion.

Fastest Way to Acquire 10 Investment Properties

Nathan asked a question on my post “Give Me Your Investment Property Questions“:

“What is the fastest way to acquire 10 investment properties?”

I think there are several questions and a couple answers to this question:
Questions:

Why do you want to own 10 properties?
Are you looking to leave your day job and work on your investment real estate [...]

Nathan asked a question on my post “Give Me Your Investment Property Questions“:

“What is the fastest way to acquire 10 investment properties?”

I think there are several questions and a couple answers to this question:

Questions:

1. Why do you want to own 10 properties?
2. Are you looking to leave your day job and work on your investment real estate exclusively?
3. Is your goal to use investment property as a supplement to your retirement or is it to add cash to your monthly income?
4. How much time and financial resources can you devote to building your investment property portfolio?

Answers

1. Regardless of how quickly you want to acquire 10 investment properties, the most important decisions you can make is to partner with a great Mortgage Banker and a great Real Estate Agent. These individuals must own investment property and specialize in investment real estate. A good team can absolutely help you be successful at growing your investment portfolio (I have see a bad team or no team send investors into financial ruin).
2. Once you have chosen your Mortgage Banker, I recommend that you follow every single piece of advise s/he gives you in regards to your financial future. Do not make a major purchase or change without his approval. He understands much better than you what that new car will do to your chances of getting a mortgage for that next investment property.
3. Assuming for a second that you don’t have an extra $400k sitting around to invest in real estate (for 20% down payments), in this market, I would be capitalizing on rehabs as a way to stretch your limited down payment pool as far as possible. We are working with many investors right now that are going to acquire 5-10 new Minnesota investment properties and spend very little of their initial down payment seed money. Read about those Minneapolis investment property opportunities here.
4. I also recommend that you buy your properties in clusters. You do not want to be driving across town (especially when gas is $4 per gallon) every time you need to unclog a drain or show an apartment.
5. Get yourself organized early with an accounting system for your investment properties. Without setting this up early you will be letting money slip through your fingers by not keeping on top of what your tenants owe you.
6. Lastly, read how I manage 28 rental units and get prepared! There are many tricks and time saving tips to managing a larger portfolio.

Setting a goal to acquire 10 investment properties is a good goal to look forward to. If you achieve it, you can set yourself up for a lucrative financial future.

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.

Scott Ficek is a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Investment Property. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.

Pay Down The Credit Cards or Buy An Investment Property?

Chris over at Kansas City Real Estate Investing has a great post that many people don’t think about. Go on over and check out why it may be better to pay down your credit cards than to Buy An Investment Property.
Have you always wanted to buy investment property, but never knew where to start? [...]

Chris over at Kansas City Real Estate Investing has a great post that many people don’t think about. Go on over and check out why it may be better to pay down your credit cards than to Buy An Investment Property.

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.

Scott Ficek is a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Investment Property. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.

Done With Short Sales

I probably look at 100 investment properties per week on a busy week. These days, 90% of the properties I tour are bank owned or REO properties. Every so often one comes up that is a short sale. Initially, I was pretty excited by short sales. Here were properties that were [...]

I probably look at 100 investment properties per week on a busy week. These days, 90% of the properties I tour are bank owned or REO properties. Every so often one comes up that is a short sale. Initially, I was pretty excited by short sales. Here were properties that were often in better condition, selling at REO pricing, and had less rules for submitting offers than foreclosures.

In the last couple months, though, my attitude and mood toward Short Sales has changed dramatically. Here is why:

1. Short sales can take weeks and months to receive any response from the bank regarding the offer.
2. During this time, you will get no information about the process or offer.
3. Despite the length of time it takes to get a response on a short sale, often the end of the redemption period deadline is looming.
4. After weeks and months, another offer can come in at the last minute and be accepted by the bank.
5. Banks have been doing foreclosures for decades and have systems and people in place to handle these. It seems like they make it up as they go along when it comes to short sales.
6. I have had full price, non-contingent offers turned down because the bank has decided to wait and let the property go into foreclosure.
7. Unfortunately, some real estate agents are not trained to do short sales and simply don’t understand all the intricate details of a short sale.

Of the last 5 purchase agreements I have written for short sales, 4 have ended in complete frustration. Knock on wood, but one is going OK to date (but we submitted it 4 weeks ago). Although I will submit any offer, I am advising my customers to avoid short sales at this point.

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.

Scott Ficek is a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors with their Property Investment. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.

New Minneapolis Rental License Fees

For those of you buying single family houses in Minneapolis, this may affect you, please read on. On March 18, the Minneapolis City Council enacted a new rental license fee called a “Rental Dwelling Conversion Fee“. This new fee is a one-time fee of $1000 when you convert a property from homestead to [...]

For those of you buying single family houses in Minneapolis, this may affect you, please read on. On March 18, the Minneapolis City Council enacted a new rental license fee called a “Rental Dwelling Conversion Fee“. This new fee is a one-time fee of $1000 when you convert a property from homestead to non-homestead. You will pay it the first time you apply for a rental license. Here is the definition from the Minneapolis Rental License website:

Dwellings Converted to Rental: Whenever a dwelling is converted to rental usage, the dwelling shall be promptly inspected for compliance with minimum housing standards. The fee for this required inspection is one thousand dollars ($1000.00). This fee shall be in addition to the annual license fee. Exemptions: buildings containing 6 or more units; dwellings owned by nonprofit entity (as defined); new construction.

Recently, there are a significant number of single family houses in Minneapolis being purchased by investors and converted into rentals. This new fee will affect some of those purchases. Be prepared for it.

What I Would Like to Say to Wannabe Real Estate Investors, but Shouldn’t

“Get up and do something, anything! What are you waiting for?”
I never rant on this blog. I never put people down (except stupid property repairs). I never want to upset anyone.
Maybe I need to step outside of my Minnesota nice exterior and introduce you to a pattern interrupt. If you have [...]

“Get up and do something, anything! What are you waiting for?”

I never rant on this blog. I never put people down (except stupid property repairs). I never want to upset anyone.

Maybe I need to step outside of my Minnesota nice exterior and introduce you to a pattern interrupt. If you have read every real estate investing book, ordered every late night-infomercial program, attended multiple expensive training “boot camps”, but still have not or can not pull the trigger to buy investment property, this is your day.

As buyers, we are seeing some of the largest roll-backs of prices in recent history. Who would have ever predicted that we would see capital deflation in the housing market? I understand that statistically the market is only down 5-10% (depending upon who you ask), but every day I find properties that are currently selling for 25%-50% of their pre-2005 values. Talk to your neighbors, watch what is selling.

Whenever anyone asks me how the market is going these days I tell them it is smoking hot. Then I always say the same thing: “If you have money, now is the time to spend it”. Are you waiting for your Internet stocks to rebound before buying property? Do you think those government bonds are going to bring you extraordinary gains?

Let me explain why your excuses for not getting into the market and buying investment property simply do not hold water:

1. I am waiting for the market to go down more. Tell me how you are ever going to know where the bottom of the market is…If you are holding an investment property for 5-10 years, who cares if you miss that extra 2-3% in price drop when you are buying a property at 25-50% off its previously highest sale values.
2. I have heard that the market is going to get worse before it gets better. Possibly…but I am not telling you to leverage everything you own and put your family in jeopardy to buy investment property. Do something that you are comfortable with, can afford, and sleep well at night, but DO SOMETHING!
3. I don’t want to own property in North Minneapolis. OK…There are fantastic opportunities everywhere for any size and type of investor.
4. I have a busy job/family life/hobby and don’t have time to manage properties. No problem…Put them into property management or partner with someone who has time and experience!
5. I don’t know how to be a landlord. I didn’t either when I started…Get around other people that do it and simply figure it out. Call me, I’ll talk you through it. You are going to make mistakes, accept that fact. Just do the best job you can and learn from them.
6. I have heard that evicting tenants can take months. No it doesn’t. It takes some landlords months to make the decision to evict. The process takes about 2-3 weeks.
7. What if my tenants don’t pay their rent. See #6.
8. My [insert name of person here] owned rental property and said it was a terrible experience. For every negative experience…I would say I know people that have made millions owning investment real estate.
9. I don’t have any money. Now that may be a legitimate reason…But even there I may be able to show you how to get started in this market.
10. Everyone says the tenants will trash my property. Maybe…but if you are doing a good job at screening your tenants, you will minimize that risk. Additionally, that is what the damage deposit is for.

I can continue to address your concerns and hear your objections. This is the best market that we have seen in a long time and it may be another long time before we see it again. Ultimately, you need to decide if you are really serious about buying investment property or just pretending.

Scott Ficek owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email. He is also a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Minnesota Investment Property.