What are the best deals for real estate wholesalers to be working now?

As the market continues to change and revolve, where can wholesalers find the deals? Where can the good deals be found? What moves might you not want to make?

Foreclosures

Foreclosures have been growing again. While the actual number of foreclosures is relatively small on a national basis, there are pockets of higher activity.

ATTOM Data says foreclosure filings rose almost 130% over the past year. Still, with only 25,000 or so filings in a given month they can be snapped up quickly by a hungry market.

However, there are cities and zip codes where 1 in every 300 to 400 housing units is receiving a foreclosure notice. Those are 2008 level numbers.

These areas include Cleveland, OH, Kissimmee, FL, and West Palm Beach.

Distressed & Motivated Sellers

Banks still seem to be holding very few REOs. They are being auctioned off first, or sold fast.

Wholesalers may find better deals, and less competition if they market directly to distressed and motivated sellers.

This may include leads on homeowners who have large amounts of consumer debt. Those who have fallen behind on credit card and car loan payments, or small business loans.

HOA Properties

Rampant inflation is everywhere. Recently property owners have been complaining that their condo or home owner associations have raised their dues by 300% to 400%. That means many won’t be able to afford to keep their units.

If you are in and out fast, and can flip them to more affluent buyers these could be great deals.

Commercial Real Estate

It’s no secret that the residential market is heated and hyper competitive. Switching to commercial properties could lead to less competition, and bigger paychecks.

Consider which properties are most in demand by end buyers, which types are being liquidated, and which will do well in a new crisis.

This can include self-storage, multifamily, and office buildings.

The Deals You Have Pre-Orders For

The smartest and most profitable way to wholesale is not to speculate, but to simply fill orders for your end buyers. This way you don’t get stuck with properties, and you can use transactional funding to finance your entire purchase price.

Find volume buyers who will stick with you through the changes.

Moves Not To Make

With the way the market is evolving some wholesalers have considered fixing and flipping, buying and holding, or getting into Airbnb properties. This can be a huge mistake. It means moving down the food chain to more labor intensive and higher risk deals.

You do not want to be stuck with properties that have peaked.

If you looked at who survived previous crises best, it seems to be those that stuck to wholesaling.

 

Foreclosures are rising. Is it enough to shift the market, or just fuel real estate wholesalers with more deals to do?

According to ATTOM Data foreclosure filings leapt almost 30% between January and February this year. With a year over year increase of almost 130%.

That sounds like a lot, but it still only means around 26,000 new foreclosure filings for the month. That is sadly many individuals and families that could be losing their homes. Though it certainly isn’t enough to satisfy current demand.

There may be far more foreclosures in the works when you add filings and defaults from each month. Though most are being snapped up as pre-foreclosures before they become REO, due to the high amounts of equity in the market. Of course, banks may also see taking back properties as being attractive and profitable.

More Foreclosures Are Coming

One reason for such a large percentage spike in foreclosure activity is that the legal process is just recovering from moratoriums and shut downs.

With around just 1 out of every 2,500 housing units receiving a foreclosure notice in Jacksonville and Orlando, FL in February, the market seems much healthier than in 2008. When it wasn’t uncommon to see the foreclosure rate 5-6 times as high.

However, there are a variety of factors which could produce even more foreclosures, and motivated seller deals in the near future.

Opendoor has estimated it is holding $6B in unsold properties. That follows Zillow’s failure, with around 7,000 properties to unload. That could be added to with the failure of other big iBuyers like Offerpad.

Then there is inflation, which is cramping consumer finances. Even aside from groceries and gas, there are large hikes happening in taxes and insurance. Many will see jumps in property tax bills. Some condo and townhome owners are seeing their HOA dues jump by 300% to 400%.

Seeing The Opportunities

With such great end demand for real estate, investors will find any more distressed and motivated seller inventory very attractive. With the potential for better value deals, and more volume.

This doesn’t just have to be residential either. Some of the biggest wholesale deals we’ve seen recently are office buildings. Retail and mixed use could be areas to explore as well.

 

There’s a lot more foreclosure and REO activity out there today than many realize. Many cities still have thousands of foreclosure properties, and auctions have spiked by over 100% in some places. The deals are out there if you know where to look and how to approach those holding these assets.

Special Servicers

Special servicers handle the bulk of default debt and REOs today. If you are a licensed Realtor, you can approach these servicers and try to get REO listings. Or, if you have experience and a good presentation you may be able to buy REOs and non-performing notes in bulk.

Some of the top special servicers include:

1. Key Commercial Mortgage

2. BNY Asset Solutions, LLC

3. Midland Loan Services, Inc. (now part of PNC)

4. Bank of America

5. Prudential Asset Resources

6. Centerline Capital Group.

7. GEMSA Loan Services, L.P.

8. Hatfield Philips International Ltd.

9. Situs Servicing, Inc.

10. TriMont Real Estate Advisors

11. LNR Property Corp.

12. Ocwen Financial Corporation

13. Wells Fargo Commercial Mortgage Services

 

Pros:

• Low amount of effort if you have a good presentation on hand

• Can be done online

 

Cons:

• Often a wait and hope strategy

• Need to be able to buy in the tens of millions of dollars range

• No direct communication with real decision makers

 

REO Agent Directories

Realtors can be a great source of REOs, especially from the bigger banks and servicers. Check out the following directories where they hangout. If you are a Realtor you can get listed on them as well.

• REO Network

• Fannie Mae

• HUD Homestore

• REO Industry Directory

• Instant Home Link

• HAR.com

 

Pros:

• Easy to find contacts

• Can be done at scale quickly

Cons:

• Can be time consuming to personally comb through endless directories

• Can be a waiting game

Go Direct to Banks for REOs

Local community banks, credit unions and private lenders have REOs too. This inventory is typically less competitive and often overlooked. Go straight to these asset holders to purchase their REO.

Pros:

• Less competition

• Easier to reach decision makers

• More loyal sources of repeat business

Cons:

• Each will have fewer assets on hand than the big banks

• Probably don’t have organized processes for liquidating REOs

• Need to be good at relationship building

Pre-Foreclosures

Getting to these properties as pre-foreclosures before the auction and becoming REOs can mean they have more equity, less accrued fees on top, and sellers can be more flexible to work with. Find them online, by acquiring lists, and through attraction marketing.

Pros:

• Potential savings on Realtor fees, back interest and fees

• More flexibility in negotiations

• Ability to really help individual homeowners

 

Cons:

• Typically means working just one property at a time

• Sellers may not want to sell, even if they need to

• Lots of competition in most markets

Real estate investors looking to lock in the best deals on short sales will find arming themselves with the following facts ideal for signing up hesitant sellers and the best properties.

While short sales may not always be ideal for flipping real estate and investors need to be careful not to get involved in what could be considered ‘short sale fraud’, these properties do often offer some of the most significant discounts. On top of this they also frequently provide far more protection in cleaner titles and homes which are in much better condition than other types of foreclosures.

Unfortunately, despite short sales normally being the best option for most underwater homeowners many are paralyzed with fear of taking any action or resistant to any offers to buy their homes. Armed with the following facts investors should be able to break down these barriers and negotiate the best prices on short sales. This can be done when making an offer or used to set up the offer through direct mail or email.

6 Reasons Homeowners need to do Short Sales Now:

1. Credit Implications

While the effects of a short sale on credit scores has been debated credit bureaus and modeling agencies including Fair Isaac and Experian have recently broken their usual silence to explain the effects of mortgage delinquencies on credit. Among these releases they have commented that those which opt for short sales and for which lenders report no outstanding delinquency may see a less significant drop in credit score and a faster rebound.

2. They Can Buy another Home Sooner

Depending on the details of the short sale homeowners can qualify to buy a new home within a couple of years or even right away. With rents raising quickly across the country it may soon be far cheaper to buy everywhere.

3. Minimizing Taxes

The Mortgage Forgiveness Debt Relief Act ends this year meaning homeowners opting for short sales after 2012 could be hit with incredibly huge tax bills. On top of this there are billions of dollars in other tax programs ending at the end of this year which could multiply this effect.

4. Expiring Payout Offers

Many lenders have been paying out tens of thousands of dollars in cash incentives for homeowners to complete short sales on top of mortgage forgiveness. Unfortunately, as with Bank of America’s offer of up to $20,000 which ends in August 2012 other programs are likely to fade away too, meaning no money for relocation and potentially still owing on the mortgage after the bank has seized the property if short sales are not completed in the next few months.

5. Buyers are Interested Now

There are interested buyers and investors like you in the market now but as mortgage interest rates and home prices raise it will be far less attractive to buy and fewer individuals will qualify for loans. Waiting could make it much harder to sell.

6. Faster Processing Times

Right now lenders are speeding up short sale processing times and armed with transactional funding investors can close very quickly.

Rumours of a new Bank of America plan to liquidate REOs and speed up pending foreclosures on delinquent loans have been floating around for the last few weeks. Now, details reveal their idea for having real estate investors like you bail them out.

In what is being marketed as a sweet deal for real estate investors Bank of America is working on a program that would offer short sales on REOs providing investors took over these properties with the previous owners still in place as ‘tenants’.

Who doesn’t want a great turnkey investment property that is already producing rental income from day 1? Turnkey rentals shave become popular but BofA’s deal presents a virtual mine field for investors which threatens to blow up in the face of those who step in to bail them out.

Clearly the bank isn’t doing this to help either real estate investors or borrowers. This is further demonstrated by the fact that they are one of the few mortgage giants who haven’t joined in the holiday foreclosure moratorium. They are hurting, desperate and willing to be extremely creative in order to dump this glut of REOs on someone else, while trimming as much cost and risk as possible.

Obviously this plan has been cleverly hatched in order to avoid being sued for evictions, fighting over deeds, to minimize bad publicity and to lower the high costs of foreclosing on, holding and maintaining these REOs. All things it seems that would be dumped on those who would bail them out.

Note that the bank announced it would only roll out this program in poor markets where the can’t sell the homes themselves so why would you want to step in there anyway? Secondly, those who buy these REOs will be taking them on because the tenants weren’t paying. Why are they going to pay you? Plus if the mighty Bank of America couldn’t evict them what makes you think that you can?

The bottom line is that it is an ugly proposition for savvy real estate investors even though there may be some poor foreign investors sucked in by great marketing for it and who are not experienced enough to read between the lines.

Investors are probably much better off seeking out deals from wholesalers or hunting down pre-foreclosures themselves and either simply flipping houses using transactional funding
or finding fresh new tenants who won’t be trying to fight over the title to the home.