Buying REO (Real Estate Owned) homes takes creativity and patience: You must negotiate with banks, your offer may or may not be accepted, and the whole process can take months.

Problem is, many REO investors don’t think like banks. They believe their offer is fair, the property has languished on the market forever, and they can’t understand why the bank isn’t returning their calls.

All of this may all be true, but remember it’s the bank that holds the key to REOs; the buck starts and stops with them. Without accepting your offer, you don’t have a deal. A little homework before you make an REO offer can lead to a lot less headache in the long run.

Your goal is to get the bank to say “yes” to your offer. The more you know about the factors a lender uses to evaluate a REO properties can result in a smoother sales process and, ultimately, bank approval of your offer.

Evaluate Your REO Deals Like A Bank

No matter how much your offer is, the bank is going to always think the property is worth more. It’s that simple. Lenders agree to an REO based on a percentage of what banks believe is the “as is” value of the property. Every lender has a different approval percentage, and these figures can change.

Your goal is to offer just enough so that the lender quickly approves your offer; nothing more and nothing less. Knowing the approval percentage is half the battle; the other part involves the as is property value in the lender’s eyes.

This is determined by the broker’s price opinion (BPO), which involves three comparable sales, three active listings, local market conditions and other evaluations. The BPO is typically conducted by a real estate agent and also includes an interior and exterior “drive by.”  Many lenders also use appraisals.

Bank Evaluations Are Also Important In REOs

The bank doesn’t just rely on outside evaluations; internal evaluations from their REO or special assets department also weight heavily in the decision making. The valuation department can assess a property’s worth, as well as use tools that real estate professionals use.

Finally, the lender uses the BPO, appraisals and internal evaluations to determine the property value and base their decision on a percentage of that number. Sometimes, the bank’s loss mitigation rep will tell you the number.

By thinking like a bank, you can offer enough so that the bank says “yes” to your offer.

Many novice real estate investors believe they have to own properties to be successful, but you can become just as successful with wholesaling – and you’ll never have to own a single property!

This makes wholesaling one of my most popular avenues for real estate investors. When you wholesale, you don’t take ownership of property. No title or deed ever changes hands.

Wholesaling depends on three things:

1. Getting a property under contract.
2. Assigning the contract to another buyer.
3. The buyer closing on the property – and you collecting your check.

It’s really that simple. There are no banks involved and no offers that involve months of waiting to approve. There is very little risk and you can become a wholesale investor with little or no money. Best of all: You can make money on property you don’t own.

Let’s take a look at three steps crucial to wholesaling.

Step one: Find a property

Finding a property is the key to successful wholesaling. Your property must have sufficient equity in order for you to make a profit. Your property must have enough equity or profit margin for you as well as the buyer to make a profit.

Step two: Start building your buyers list.

Rehabbers are your best friend. Run a newspaper or online ad or place bandit signs with the following info:

• Handyman’s Special!
  Great deal for rehabbers!
  Call 555-555-5555 today.
  OR
• Investor special!
  Thousands below market value. This deal won’t last! Call 444-4444!

Your phone will soon begin to ring. When it does, get investors’ names, numbers, email and other information and put it in a database. This is valuable information, because this is your list of potential buyers. Run your ads for the next three months – even if your properties sell.

Your goal is to collect as many names and contact info as possible. The key to wholesaling is finding a buyer. The quicker you find a buyer, the quicker you get paid.

Step three: Negotiate a deal with a rehabber

You’re deal has to include enough cushion for you and the rehabber to make money. If it doesn’t the deal just won’t work.

Let’s say a house is worth $100,000 in good condition. The homeowners are in foreclosure and have to move quickly. They owe $50,000 on the property but need $5,000 to move and pay for a deposit at another home. You offer $55,000, but the house is worth $100,000 in good condition, not counting about $15,000 in repairs that need to be made.

You have a rehabber and you agree to sell it for $65,000, with $10,000 as your fee. The rehabber will fix up the property and sell it for market value and make a potential profit of $15,000 to $20,000. It’s a win-win for everyone, the foreclosed homeowner, you as the assigner and the rehabber.

Step four: Get Ready To Close On Your Wholesale Deal

The best part with wholesaling is that you never have to own anything; you just find the people to make the deal work – the motivated homeowner and rehabber – and go to closing. It’s that simple, and everyone wins with wholesaling.