Adventures in Foreclosure and REO

In talking with our bank about possible deals, we were brought into a couple of rented REO properties.  For those of you who don't know, REO stands for Real Estate Owned by the bank.  You'll often hear "REO Department" at the bank for the group that manages these properties.  These are properties the bank now owns (usually, but not always, through a foreclosure).

The bank said they had a grouping of properties that they foreclosed on that they thought fit our profile.  We looked and sure enough we saw 2 properties that we were willing to move forward on.  This is our first purchase in any foreclosure situation so even though those pieces were new to us, it wasn't much different from a normal purchase.  There are no agents, your buying from the bank instead of a person or other company, etc.  It was a pretty clean process with the bank (except one piece that I'll share shortly).  Keep in mind, buying from the bank under REO is much different than trying to buy foreclosure (pre-foreclosure) from the owner or through auction at the courthouse.  We haven't bought yet in those 2 manners but if we ever do, you can rest assure I will be writing about it.  I'm sure it's much more involved than what we went through.

These 2 particular properties that we wanted to purchase were already turned over to an auction company, which only means we have to pay a 10% buyer's premium to purchase these properties.  Typically the bank will not finance this fee.  Our properties were low enough in purchase price that it was only a few $K and the numbers still worked great.  If this was a million dollar property, it would have been $100k out of pocket to take it back from the auction house.  For most that would be a deal breaker so it's ideal to get the property from REO before it's turned over to an auction house.

We have informed our bank that we're interested in these properties and they know the type of property we look to buy so hopefully they will continue to feed us properties that meet our criteria.

The only hiccup we had was that property #2 had a mistake in the legal description.  The number of feet from the road was transposed.  So instead of saying 45.2 feet from the road, it said 52.4.  This nullified the entire foreclosure.  The bank now has to re-foreclose on that property (which takes ~45 days) before we can purchase and if someone comes along with a better offer (or worse yet, the owner makes the note whole), we may not even get it.  NOTE TO SELF: Always buy title insurance!  It's possible this could have gone unnoticed and we could have bought it but not been the "legal" owners.  It may have never come up again, but then again, it could have really bitten us.  If something this simple and seemingly unimportant can void a title, then imagine the other 1,000's of items that could also do it.  ALWAYS PROTECT YOURSELF!

As of the date of this post, we closed on Property #6 (last week) and are just waiting for the other one to finish foreclosure to purchase.  We have a couple of other properties in the works so now that we're back on SFR's, you'll see some more postings!

The hunt for MFR's hits a stall

So after almost a year of saving up money and looking for MFR's, we've decided that we'd abandon that idea for the most part.  We've been looking up and down in Memphis and Jackson and haven't been able to come across any deals that get us anywhere near what we were looking for.  We didn't expect to get the same level of cash flow from an MFR that we do our SFR's but the obvious benefits of fewer properties, accounting, mortgages, closings, ease of capital use, etc would outweigh 25% less cash flow.  However, we haven't been able to find any deals that justify the amount of lower cash flow.  Along the way, we kept coming across some really good SFR deals.  We kind of pushed them to the side unless they were great.  Well, we came across a couple of great ones.

While we're not abandoning MFR's, we are no longer looking.  We got feelers out to people that we are looking to invest and if something should come back to us that meets criteria, we'll be all over it.  The opposite of that basically happened with SFR's.  We owned 5 SFR's and of course throughout our first few years, we made contacts, met people, etc.  While looking for MFR's, SFR's kept falling in our lap (without looking).  It's kind of amazing to see that process develop.  When you think about it, we kind of went dormant for a little while.  We had realtors, bankers, etc calling us.  The course of this past year kind of confirms what I've read over the years prior.  Once you're in, you're in.  Maybe I'll write more on it later, but I just wanted to point out how cool it is to see that process unfold.

I've got a few more posts coming about the happenings of the last month or so.  I've got a couple of decent stories coming you're way!