5 Tips for Buying Bank-Owned Properties
The financial collapse that started in 2007 created a massive wave of foreclosure properties. Now, more than ten years later, most of that glut has worked its way through the system. Still, many bank-owned houses are out there, all of which are potential investment properties. The trick is to know how to buy them. Here are five tips to help you close more bank-owned property deals.
- Update your Proof of Funds. Cash is king in bank-owned deals. Before you make an offer, update your proof of funds. You need a letter signed and dated by a bank representative, which verifies you have enough cash on hand to cover the cost of the offer you are making. To better your chances even more, include an updated bank statement. These documents go a long way toward showing the banks you are serious.
- Increase your Earnest Money Deposit (EMD). Earnest money is submitted when you make an offer, to further demonstrate your financial stake in the deal. If you decide to back out of the deal, you will lose that money, but if a home inspection reveals a bigger issue than what you are willing to tackle, you will get that money back. Most banks will state a minimum EMD required with each transaction. Instead of just meeting the minimum, prove your interest in the property by submitting a higher EMD.
- Prepare Easy Contracts and Few Contingencies. In the real estate world, a fine line exists between protection and acceptable risk. When people are attempting to buy bank-owned properties, banks want as little confusion with the contract as possible. Double and triple check that you have signed, initialed, and dated everything required. Write legibly. Include as few contingencies as possible. Ideally, the only contingency you should specify is the home inspection. By paying cash, you are eliminating the need for a financing contingency. Do not ask the bank to make repairs—they almost never do, and including that contingency is likely to send your offer to the bottom of the pile. The easier you make it for the bank to say yes, the more likely they are to do so.
- Offer a Quick Closing. In keeping with the theme of making it easy for the bank to say yes, offer a quick close. The sooner the bank can get the property off its books, the sooner they can quit paying the carrying costs associated with that property. While a 30-day close is standard, offering to make this happen sooner is always better. This is yet another benefit to paying cash, since the money is already available.
- Respond Quickly to Counter Offers. If the bank does not accept your first offer, be ready to respond to a counter offer. Counter offers are better than a flat-out “no”. They show the bank is interested, but maybe they have received multiple offers, or maybe they are not quite to the dollar amount they projected. If you have a threshold in mind before you submit the first offer, you will be ready to make a quick decision on any counter offers that come back. Out of courtesy, if you decide you cannot go any higher than your first offer, let the bank know that too.
Bank-owned properties represent a large pool of investment opportunity. By preparing ahead of time and acting quickly, you can acquire these properties and be on your way toward financial profit.