Non-Owner Occupied REO Purchases Funded by Hard Money Lenders

Foreclosure investment properties going to auction off, there are times when the property does not sell.  The bank or financial institution then has to buy the property.  The property then becomes what is known as real estate owned or  REO.  From this point, the bank then has to market and sell the property to remove it from it books.  Usually a bank will retain the services of an real estate brokerage which specializes in REO property in the area wherever the property is placed.  Banks and conventional financial institutions are not organized for the purpose of owning or maintaining real estate, the bank then relies on the REO agent to find desirable buyers for the property.  The bank or financial institution has an REO Department and all offers on the property are funneled to that department for consideration.   The offers are then accepted, rejected, or counter offered. 

Because many of the properties that have gone into foreclosure have been occupied by owners who could not afford to make payments on the underlying mortgage, and the property is sometimes in poor condition .  This means that the buyer of such a property will have to purchase the property and then make repairs and upgrades to bring the property into a saleable condition.  Because banks and mortgage companies know that such properties are usually not of interest to direct homebuyers , the banks are prepared to deal with private investors who will purchase the property and initate repairs or a full scale remodel of the subject property.  Eager private rehab investors will take on these propery investments by using rehab hard money lenders.  These lenders will loan a percentage of based on the after repair value of the property or what is referred to as ARV.  The banks rarely offer financing on these properties to investors.  Therefore, investors will usually borrow addtional finances called rehab hard money  to enable the investor to finish the rehab project and then prepare the home for a conventional homebuyer qualification and loan funding.

Most of the REO inventory is being moved this way.   though homebuyers are buying some of the REO properties, it is generally one to two day funding that attracts banks to accept a deal on the property.  Rehab hardmoney funding is generally handled in a quick closing process.  It usually takes no more than 24 to 48 hours for the entire dealings to be accomplished.  These private money lenders will develop relationship s with the same real estate investors and over a period of 12 months may do as many as 10 or 12 deals with the same investor, as the investor develops a proved track record.  Investors who submit excellent loan packages to hard money lenders are usually ready to do multiple deals which require subsequent funding.

 

 

Tags: ,

Leave a Reply