How To Buy San Diego Bank Owned Property
San Diego bank owned property can be a great opportunity for actively seeking buyers! In this section ScottWay Capital will show you how to buy bank owned Property in San Diego County.
We would like to share with you some inside information regarding these opportunities. This information and knowledge is known and practiced by a limited number of professionals.
For the first time we are going to disclose to you this industry knowledge. By the end we hope that you will be able to take advantage of bank owned real estate and enjoy home ownership in Southern California.
Let’s take a minute to talk about the basics…
What is bank owned property?
Bank owned property is property that a lending institution has legal ownership of, and subsequently the right to sell. How does real estate become bank owned?
It starts with a bank loaning money to a person/entity for a home loan. If the person stops paying their mortgage, then the bank has the right to foreclose, and begin the process to take back the house that was promised to them as collateral for the money they loaned. This foreclosure process simplified can be described as the following:
1. Notice that lender will foreclose if borrower fails to act 2. Notice of Trust Deed filed with county serving notice 3. Notice of Trustee Sale 4. House is put up for sale, property is either sold at auction or taken back in possession by lender
Steps 1-4 can take about 4-7 months depending on the lender.
Why would the bank want to sell their newly acquired property?
The answer to this has multiple variables and truly depends on the situation. However, the general answer comes down to accounting principals that the banks are governed by.
A lending institution derives their income from loan revenue. Logically, the banks are able to report received loan payments for outstanding loan balances as revenue. Conversely, if someone fails to pay in given month, the bank must report that as a loss. This is recognized as a non-performing asset.
From an accounting perspective the outstanding loan balance that the borrower never paid is considered a liability. The bank is then forced to foreclose and now the bank owns the property. Once the bank has foreclosed on the property the real estate is called Real Estate Owned (REO). It is in their best interest to sell the property and offset as much of the loss as possible. In essence they are trying to minimize the overall loss and maximize their operating cash flow. The Strategy of How To Buy Bank Owned Property in San Diego County
Now that you understand why banks are selling property and the urgent need to liquidate their REO, we can start talking about ways to increase your chances of buying a home at discount!
The lenders expenses increases every month that they fail to foreclose and sell a piece of real estate they own. This gives you great leverage when negotiating with the bank. We’ve broken down the strategy of how to buy bank owned property in San Diego County in the following ways:
1. Disadvantages 2. Advantages 3. How to strengthen your position
• Seller will usually sell “as is” in need of repairs • Seller is exempt from several disclosures • Significant buyer competition • Longer wait time to complete transaction
Advantages For You
• Seller is highly Motivated • Great opportunity to purchase San Diego real estate at a discount • May provide affordable way to buy up in a nicer area • Exciting opportunity to make a solid investment
How To Strengthen Your Position
1. Get Pre-approved: Banks will not accept your offer without a prequalification letter from a lender. This piece of information helps communicate to the seller that you are a serious buyer.
2. Do your homework: The more you know about the history of the property the better decision you can make in regards to the price. Ask your real estate professional to research the chain of title. This will give you an idea of how much the last loan was for.
3. Do an upfront inspection: If you have the ability, inspect the property with a licensed inspector prior to submitting an offer. If everything is clean, submit the offer with the verbiage “as is”/inspection completed. This helps communicate that you are not requesting the seller that you understand the condition of the property and are ready to move forward with the current condition. Basically expressing that you are a highly motivated buyer.
4. Allow time for lender to respond: In your calculations, it is important that you anticipate the seller will take significant time in making their decision. In a buying environment it is better to appear calm and not desperate. By anticipating extra time, you will not be surprised when they take days or even weeks to approve your offer.
5. Expect a fight: It is in the seller’s best interest to wait and see what other offers are available. Often times they have been accused of bidding offers against one another. They will play multiple offers to maximize what they will collect. Stay relaxed and decide before hand what the maximum price is that you are willing to pay. If it goes above that price, consider finding another property.
6. Know your price: Depending on the transaction, you are better off starting low and letting the seller counter offer. Having said that, the low offer needs to be within in reason. Banks are not in the business to give away homes. 3-5% below asking price may be a realistic range that you can consider when starting your negotiations. Anything above 5% without compensating factors is probably too low.
7. Time is your friend: The more time a property has been listed the better deal you may be able to negotiate. A longer listing time communicates to the buyer that it is either overpriced or there is something of material fact that is affecting the marketability of the property. Make sure you ask questions and get a full home inspection.
Above all, work with professionals who understand how to buy bank owned property in San Diego County.