If you have attended a Las Vegas trustee sale down at the car park of the Legal News Building, located near the courthouse Downtown, then you will note that most of the loans offered for sale do not receive any bids, and revert to the lender. The properties are then termed Real Estate Owned (REO), and the lender will manage the property, and eventually add them to the Las Vegas REO listings via a broker. This gives the investor another bite at buying a property during the foreclosure.
REOs are no cake walk, and have a lot of limitations. Whilst you can snap up a trustee sale in an instant, with an REO you could be stuck in a quagmire of bank negotiations for months. Banks are savvy and will have a Broker’s Price Opinion (BPO), and are unlikely to let the property go for less than its BPO valuation. This is especially true if the bank has already written off the debt as this lessens the urgency to get the asset off its books. Some banks rehabilitate properties prior to listing them for sale which reduces the profit margins available to investors. With an REO the bank has no restrictions on its listing price, and this can make it harder to find a bargain. Finally, not all investors are equal in the eyes of the bank, and they have a panel of preferred brokers and buyers that they tend to work with.
With so many Las Vegas foreclosures banks are increasingly appointing third party asset managers to deal with their portfolios of REOs. Or they will have a special department in the bank, that usually appoints and REO broker. With the limitations of REOs, and the fact that you have to build a relationship with specialists on the seller side, you need to prepare yourself in order to be an effective investor. You need to make an effort to become an REO insider so that good fortune, in the form of first look at the sweetest deals, comes your way.
These days cash is king, and trying to secure seller financing to purchase an REO is not usually a successful tactic. Las Vegas REO properties is not a market where you can make returns with no money down. You should use the amount that the bank paid for the property to guide your negotiations, and you can find this by looking for the sheriff’s deed filed at the county courthouse.
Inspecting an REO is not always easy and there are some tricks to doing it well. If the house is occupied the occupier may not let you in, but by talking to them at the door you can at least peek past them to see what state it is in. If it is unoccupied then one way to get access is to offer to change the locks for the bank at no cost. If your offer is accepted then you can take a look around at the same time. If banks recognize you as a serious buyer then you should be able to arrange an inspection. The final option you have is to write an offer contingent upon passing home inspection, but in Las Vegas you are competing against cash bidders that move quickly, so this clause may reduce the competitiveness of your bid.
The best time to buy an REO is immediately after the trustee sale as there is no redemption period for out-of-court foreclosures in Nevada at the time of writing. You may also find that banks are more receptive to bids at the end of each month and each quarter just before they report results. If an REO is listed by a broker, then the earlier you can get your bid in, the better.
One thing that you want to avoid is getting involved in the shady side of REOs. If you have some relationship with a broker who offers you a property at way below market value, which you can then flip, then this is a pass through profit that belongs the lender not you. Another term for broker’s cherry picking their best deals for a favored panel of buyers is pocket listings. You might feel like you have made it to the inner circle of REOs, but this behavior is unethical, and there is plenty of money to be made in Las Vegas REO properties without resorting to these tactics.
Determining the price point that you can take an REO down for is based on a number of factors. Not only do you need to look at the unpaid balance of the debt, but also the other expenses incurred by the bank, such as legal fees, property taxes, collection fees and repairs. If you are buying a property in a declining market then you will want to increase your target profit margin. Alongside the price that you offer the bank will take into consideration your means to pay. The best deals in the Las Vegas REO market are dominated by cash buyers, but if you have solid proof of financing at the time of the offer you may have a chance. If you make a large down payment this can help strengthen your standing, and an unconditional offer is the strongest.
When it comes to closing follow the standard steps. Just because you are buying from a bank, you should not lighten your due diligence. Title insurance remain essential and in the cut throat world of a Las Vegas REO.
