Trap # 1: The REO Rat Race

The residential REO market has changed. There’s less inventory than there was in 2008 to 2012. There are several points I want to make here about what’s going on with the current REO (Bank Real Estate Owned) market when it comes to investors who are purchasing REOs for buy, fix and flip and buy, fix, hold.

Between 2007 to 2011, banks were giving away their foreclosure resales at approximately half price because the REOs were destroying the banks’ balance sheets. They were terrified that the United States government (Controller of Currency) would come in and shut them down. If you remember, we were watching on the news and on the internet in 2008, 9, 10, 11 and 12, when, four, five, six hundred banks were seized and closed a year. And that was because their portfolio of residential bad loans. The banks’ sub-prime loans, \were taken care of by the federal government’s $7 hundred billion bailout.

A lot of real estate agents, brokers, and “gurus” concluded that, because there were great deals in 2008, 9, 10, 11 and 12, that there are still great deals. That is false. It’s just not true. The banks’ portfolios of REOs were in deep jeopardy and the federal government’s banking regulators were tremendously concerned.

More importantly, in 2012, the Equity Funds and the Hedge Funds bought six to eight Trillion dollars of REOs from the major banks. That’s Six Thousand Billion, that’s a lot of money. That’s six million, million. Six to eight trillion dollars of REOs. The source of that is Bloomberg News and Check it out. It’s the truth.

So, now, the foreclosures/REOs inventories are back where we were in 2003 and 2004. We don’t have the level of inventory of REOs as we did just a few years ago. Can you hear that sucking sound when six to eight trillion dollars of REOs went away? That’s several years’ inventory of REOs. We still have REOs, but don’t accept the fact that we’re at the same level we were before. With less inventory, the competition gets tougher, and prices go up, and lenders are no longer discounting REOs for sale.

There still are REOs. Some local and smaller banks still have very, very good deals. You can still get bargain deals from credit unions or small local banks, and people who were not bailed out. My mentees and I have done that all in the last three years. But for the most part, buying REOs for buy, fix, and hold or buy, fix, and flip, it’s more problematic. Prices for REOs from major banks are currently high and unrealistic. Are properties sold at a discount? Well, per Well Fargo’s own website, their answer is: “Properties are listed at the full fair market value.” So right now, in 2017 the banks are telling you that they’re selling REOs for full market value, even though, in 2016, the National Association of Realtors (NAR) still asserts that REOs are being sold at a slight discount.

The big banks like – I’ll name names just because they’re the biggest banks, Wells Fargo, B of A, JP Morgan Chase, Citicorp, and others who were bailed out, by both the U.S. Federal Government and the $6-$8 Trillion of REOs from the equity funds, the bigger banks are now saying, “My way or the highway.” These major lenders are now pricing REOs at or above their foreclosure price. Now, when they foreclose for $300,000 and they put the property back on the market for $320,000 because they know the real estate agents will eagerly pitch this new REO to hungry home buyers and residential investors.

The Commerical Difference

We're not chasing after REOs when it comes to commercial property. Frankly, you won’t have a much competition because commercial real estate scares some people, maybe even you are scared. Maybe you're afraid, you're hesitant, because you don’t know about it. But commercial real estate is easy to do, when you know the process and the steps to follow. Once you learn the complete system, you can be like Mark, who purchased 3 income (commercial) properties in a year. Or like Fred, who started with two small apartment complexes, but now has bigger apartments that have enough cash flow so Fred can hire a property manager to do all the work. He visits the property occasionally, and then writes off the travel as a tax deduction. He takes his wife with him because the apartments are in Jacksonville Florida. So, they stay and vacation at Orlando Florida and spend time with each other and the family.

Wouldn’t you like to have that kind of time freedom? Wouldn’t it be nice to have money coming into your bank account each and every month? How would it feel to have that kind of money and time freedom? What could that change your life? What would that kind of freedom mean to you? That’s what the Commercial Real Estate Mentorship Program is designed to do. I'm laying out for you, in easy to follow step by step videos, what this business is all about; how to find, how to analyze, how to negotiate, how to purchase, how to close your deal by doing your due diligence and how to manage and maximize value. All the steps are in the course. You're going to have what the competition you might have, doesn’t have, the street smarts of how to do a commercial real estate deal.

Think what that will mean to your real estate business. The world may be afraid of commercial real estate, but you won’t be. You can get out of the REO rat race trap and escape the feeding frenzy.

Want to find out how easy it is to find cash-flowing commercial real estate in 3 easy steps? Take my free mini course now. Absolutely no obligation. 

Dream Bigger! Succeed Faster!

Take Care,
~Doc Haller


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