Christian Osgood explains how to buy bank-owned real estate without cash on hand. Banks want cash but may accept taking over a non-performing loan at a discount if you can service it. REO deals require lined-up financing upfront since you close in one step, not contract-then-finance.
Chapters
I have one that I'm curious if you ever worked on, like bank REOs in the past? I have personally not bought one. I have looked through them. I have friends who do them really extensively. It's one of the only things that I would not be teaching from literal experience, but I'm dangerous in my knowledge of them. Because I was just curious, like, how, how would one work a deal like that, where it is a bank REO? And most likely the bank's just want the cash back. Okay, so my first question in REO, whenever I've worked on these, is, um, does the bank want to— do they want to have a performing deal, and do they want to keep debt on it? Because usually, you know, they've retaken the property. I've had several deals where I've actually analyzed them, and we've— the game plan would have been we take over the bank loan at actually less than their balance due, and then we just start servicing the loan. They basically— we just take something non-performing on their books. I'm like, hey, look at, um— so I just did this in Texas. This is not always the case, This was a syndication gone way bad. So they were hopelessly underwater on it. They like it. Absolutely. They owed more than the building was worth. So we came into the bank and said, hey, look at your mortgage on this is like 100% loan to current value. We'll come in if you finance us, we'll just come in at 75% of your current note value and just solve the problem that you have this underperforming property on your books. You don't know how to manage it. You don't want to manage it. You would love your loan to be serviced. We'll just fix the problem. Uh, that's been my proposal. They went with someone else who has more REO experience. A friend of mine out of Oklahoma actually did the deal exactly the way I proposed it with them. Uh, so they actually accepted that offer, just not from me. And, and the guy they went to owns 2,000 doors. He, he was, he was the stronger pick. I would have picked him too, to be fair. Uh, and he was the one who told me I should look at the deal. He's like, hey, I might offer on this, but if I don't, you should. And so He also knew my offer, so he did kind of cheat. I kind of did the work for him, but his firm has landed 3 or 4 deals for me. So we're still in good, fair, fair competition on that one. So that's one way. Sometimes they actually will lend. You can just take up the debt. Usually they want to be cashed out. The most common ways to go for those, they want to— those are the ones where they, they want you to have your money already lined up. That's the hard part with REOs is your creativity limit is usually lower. Your lever is pricing and they want to see like hard money or investors are already lined up. It doesn't blend super nice with our strategy because I like to get things under contract and then deal debt equity. This is really— REO is deal debt equity all at once. No sequencing. Have it lined up, ready to go. You have to kill it on price. And if you kill it on price, you close it with the financing available and you find new financing is usually how it goes. So it's more aggressive and you'll want to have 1 or 2 capital partners in mind in the front end who are like ready to fund is usually what you need to see.
