Hawaii Home Foreclosures: REO Buying Tips (Part 2) – Should You Flip It?
Every Realtor dreams of their clients being proactive as they work towards a common goal together. So, to help ensure you’re doing your part, check out these 10 tips for buying an REO property:
Remember, It’s All About You!
1. Select a knowledgeable, expedient Realtor. Great REO properties move in and out of the marketplace very quickly. On average, my REO listings move from list date to contract in 16 days. When you are hot on the trail of new REO properties you need an agent who will prepare all documentation to make an offer in a moment’s notice: copies of pre-approval letter or proof of cash, purchase contract, AS IS addendum, associated documents required by REO bank or listing Agent (usually available in the MLS), lead base paint disclosure (if applicable) and the EMD (Earnest Money Deposit) for easy access. Banks normally throw out all non-HAR addendum, so don’t bother. All you will need now is to add the miscellaneous information that is specific to each REO. You sign, your Realtor presses send!
2. Short sales vs. foreclosures. In the past, short sales took far too long to close. Over the last two years, improvements have been made to expedite the short sale process. They are now worth considering, if the price is right. Know your market if planning to flip your purchase.
3. Be aware of borderline deals. Clear your mind and move emotions away from your decisions. Blowing your nest egg on a marginal deal is the path to failure. Be realistic and cautious when calculating rehab costs, and the time to resell the property. It’s better to choose no deal than a bad deal.
4. Look at the inventory and turn-over ratio in the area you desire. This is where your Realtor comes in handy – on the MLS you can count the sold comps for the last 6 months and the number of active listings. How many months of inventory are on the market now? This may have an impact on your goals and strategies – and whether you decide to flip your purchase or not.
5. Cardinal rule, don’t over-extend. Pace yourself when dealing with the frenzy of a bidding war. There will always be more deals and probably for less money. Don’t bite off more than you can chew! Note: If you are considering REO properties, don’t forget that the previous owner already failed, so be very wary.
6. Handling a bidding war. Offer your highest and best out of the gate, normally over list price. You’d better have done your homework to know what the property is worth, but your Realtor knows, or should. Bidding wars connect you to an exciting gladiator-style frenzy. If you have a competitive nature, you could see yourself throwing your original goals and strategies out the window to win at all costs. The gamble – this is not Las Vegas, this is the housing market in a declining economy! This is where your level-headed Realtor comes in handy and reels you back to Earth.
7. Do you want immediate acceptance of your offer? Don’t ask for contingencies, don’t make low-ball offers, discuss with your Realtor how low you can go if offering cash, but usually it’s not much lower than asking price unless the property has been on the market over 90 days, or has serious issues such as: outstanding permits, code violations, unfinished construction, non-permitted structures, etc., Don’t be naive, financial institutions selling their REO properties have their own set of goals and strategies, just like you. They don’t veer far off the mark. Low-ball offers don’t make any sense to them, in as much as you over-extending yourself is not a consideration.
8. When valuing property. Look at the active and pending comps as well as sold comps. In a declining market it is common for active listings to be cheaper than the last sold comps. If this is the case, your finding is probably a precursor to the market continuing its decline.
9. If your plan is to flip your purchase, follow an exit strategy. Your goal should be pricing your new purchase below market value which dictates what you will pay for the property. Flipping is not necessarily recommended in Hawaii. In addition, you may be competing with more homes than just the neighborhood where subject property is located. I have more than one buyer (not an investor) actively looking for homes in Haiku, Kula, Pukalani, and Makawao. They will be happy with specific assets in their price range, in any of these locations.
10. Do your rehab work immediately, follow a budget. Get it back on the market quickly, and sell it fast using the most creative selling techniques possible. This requires you to have a savvy Realtor.
Want to Know More?
If you have any questions about buying a real estate owned property, please contact us.