Learning how to buy bank owned property is a sure-fire way to increase your odds of wholesaling and house flipping success. Entire books and courses have been developed around this topic, so to keep this post simple, I will focus on the keys to making a successful offer that sticks.
The "Low-Down" on How to Buy Bank Owned Property
- When making an offer on a bank owned property, the first step is typically to place all offers in the name of a trust. In this instance, the trust is the buyer of the property. You the investor are the trustee, and you will execute all necessary contracts and documents. This is important to understand because here at House Flipping School we preach using OPM, or other people's money to fund your deals.
If you need a refresher on why and how to use OPM, click here.
- Once the purchase and sale agreement (P & S) has been fully executed and earnest monies accepted, the trust will have an equitable interest in the property. You will want to add your buyer to the fully executed purchase and sale agreement via an addendum. You can add your buyer as an additional trustee and/or as a beneficiary. As an investor, you have the ability to resign as a trustee and relinquish your beneficial interest. Of course all of these documents and your fee, can be held in escrow by your attorney until closing.
Are you confused yet? LOL Believe me I was the first time I read about how to buy bank owned property. Yet as with anything in life, the more times you go through this process, the more comfortable it becomes. Here at HFS.com we have a specific plan in the works for showing you exactly how to learn this sort of thing. Stay tuned this spring for some major changes here on the blog that are going to knock your socks your off.
- Continuing with the above mentioned process, the seller may or may not require you as the trustee to remain on the contract through closing. Should the seller require you to remain on the contract, simply execute a Quitclaim Deed, held in escrow and record it directly behind the deed. In some instances the sellerâ€™s attorney will deed the property directly to your buyer.
An LLC can also be used in a wholesale transaction once the offer is accepted. The LLC, which has made the offer, can be sold to your buyer with the contract in place.
In any instance, I recommending giving sellers 48-72 hours to respond to the offer. Odds are that the seller will be â€œout of contractâ€ by the time they respond to your offer. Keeping the window of response time to a minimum allows you as the investor to move forward with placing multiple offers.
Structuring your Offer for Success
It is pretty critical to have proof of funds when making an offer on a bank owned property. You can't just mosey on into a deal without proof of funds and expect success. It just doesn't work that way. If you don't have money of your own, then spend time networking with people who do have funds to invest.
After you have funds there are a few things you can do to structure your offer for success.
- Once you have established a good working relationship with a lender, have them write you a letter stating that you have a Line of Credit available for a certain amount. Make sure to specify that this line of credit is for real estate purchases. Try to not state any special conditions.
- Do your homework beforehand, know your market and the property better than the seller. Avoiding getting "caught up in the dealâ€ and instead set your criteria and stick to it.
- Look for property that has multiple exit strategies and/or value plays. The cleaner the offer, the more appealing it is to the sellers.
- Do not assume the seller is paying customary closing costs, these are not traditional transactions.
For more detailed and specific information on how to buy bank owned properties, be sure to check back here this spring. I am extremely excited about what we have "in the works" and I think you will be too.
Take care and all the best,