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Bank owned properties, also technically known as REO (Real Estate Owned), are today the most profitable and active segment of real estate investing in the United States. They are easy to find, the bank itself advertises them, and they require a relatively short negotiation: between a few days and a couple of weeks at the outside. The negotiation is based only on the capability of the potential buyer to buy cash (the so called proof of fund letter or statement) and on a knowledge of the condition of the property in terms of market location and repairs needed.
Banks today list their properties at prices which are fairly well aligned with the market, so to entice potential home owners who wish to live personally in the house. Gone are the days when they established their selling price based on the remaining loan balance. Today they know how to market competitively and sometimes they even start with a price that is well lower the current market value. If the basic elements are fine: roof in good condition, functional plumbing and electric components and no structural damage, a retail buyer is likely to win against any investor since the home owner is willing to offer much more and he is also ready to put up with the basic repairs that could be needed to make the home fully functional. A broken water heater or A/C unit, new carpet and paint, new windows are usually acceptable for an home owner who can still get the house at a good discount.
The investor has better chances of acquiring a property for a price that is right for him when he deals with homes that require substantial work or that have been on the market for some time. I found that after a couple of months the house has been listed, the bank becomes much more willing to deal with investors. Banks sometimes start a bit too high and don't accept lower offers for sometime until they discover that nobody is willing to bid anymore. At that time they usually accept a lower offer.
The more rehab work is required on the property, the easier it will be to get a very good price, but this demands closer attention to evaluating the costs and then finding the right contractor that can perform within those costs.
You will find that it is always good to involve two or three contractors as soon as the house is under contract with the bank and before the usual one week inspection period comes to an end. In this way you will be able to walk away from the deal if you discover that you offered too much compared to repairs required and you wil get different ideas and costs for the rehab.
Call the same contractors that you plan to use for the actual rehab and after you chose the one you want for that job, you should do a final walk through of the property detailing what will have to be done and where, putting everything in writing and defining both the scope and the timing of the work as well as the amounts to be paid at the various stages, leaving a substantial quota for the final inspection.
The materials chosen for my rehabs are conceived to make the product interesting for both an American and an European buyer. I therefore try to stay away from carpet whenever I can using laminate or tiles. If the price of the house warrants it, I will put the same type of tiles pretty much every where, making sure I get a very competitive price. The other key aspect to consider is selecting block homes rather than frame homes whenever possible: they are so much easier to sell to an international buyer.
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