Shadow Inventory ... A Secret Goldmine For Wholesalers!

Hi Carol, I see these empty, sticker plad, no for sale signed properties all the time. I have never thought to even get out of the car and walk up to the house to read the information on the sheet. I just assumed that the process of foreclosure was on-going and that a for sale sign would pop-up soon. Thanks for the great tip!

Excellent information.

With this strategy and all the ones that Dean teaches, there should be NOBODY that can't find one that works for them.

Way to get 'em Carol!

gonna be ticked off when he finds out you are gonna make $10,000!! I know here where I live the buyers are VERY bargain hunters & would only want to pay the price that you have agreed with the bank! How do I do a deal without the buyer "going" around me? I can't stress how much the buyers are bargain hunters around here! Really TIGHT with there CASH!Let me know what you would do in a market like mine!!!Thanks....

This is GREAT! I was just reading about this last week. As a matter of fact I have a webpage on my computer right now describing Shadow Inventory. Thank you Carol for brining it up.

I know the banks can't release the information regarding what is shadow inventory. I know it's done to regulate what is available at a given time so not to flood the market. I heard that they currenetly they have about 5 or 6 month supply still left in shadow inventory.

Here is a article to read: http://money.cnn.com/2011/08/22/real_estate/foreclosed_homes_shadow_inve...

Here is another good article: http://useconomy.about.com/od/glossary/g/shadow_inventory.htm

I'm curious if there is 'some' way to find those properties without having to drive around... There HAS to be a way.

Lets see what we can come up with to think outside the box and formulate another strategy for attacking this market. It's out there... we just haven't thought of it yet.

Thanks again Carol for another great POST!

Hi Carol:
I'm with Dan on the bringing the buyer to the house prior to the deal. I know you can use a non circumvent contract but isn't it risky for a newer investor to bring your buyer to a property first? What's stopping them from saying "I already knew about this house but had forgotten the address (or something to that effect) so the non circumvent is null and void"? If you enforce your Non Circumvent, doesn't that create ill will and potentially lose a client? Any thoughts to this?

Dan: Maybe in this kind of situation you may not be able to make 10K on the deal. However, if your buyer is making his money at $x.xx, you would just submit your offer to the bank for his offer minus your fees and costs. I would think a good buyer would let you make 1K-5K for your time and effort in finding this deal. When I was interviewing buyers, one said to me when the topic of my fee came up, " If you get me the deals where I can make my percentage, I don't care if you make 100K for your fee." (BTW; we are looking at houses in the 80K-100K range so I'm not getting all hieped up on a 100K payday )

Just my 2 cents...

Andy Sager
DG's AndyS

"But"...

I know I am sort of negating the thanks aren't I...LOL! No, I am not Carol and Thanks Again for the Great Info and challenge to Succeed!! Having driven around the last couple of weekends I can attest to the huge "shadow inventory" as you call it that is out there for us to grab, lock in and flip!!

Now Carol, could you please...PRETTY PLEASE... walk us Newbies through your A to B and then B to C transaction given the fact that your A (the bank) will not want to entertain your B (yourself/wholesaler) to C (investor/cash buyer) transaction at a nice profit for you! (Hope I got all parts in the sequence of the deal right there??)

I will anxiously await your answer and explanation.

PS: Mike Valler, I would imagine this would be a great project to seek interns or Bird dogs out onto for us. I am certainly going to do that this week. Thanks Again Carol and Mike too for the links.

If you are hesitant to bring your buyer than you can make the offer yourself verbally over the phone and once accepted take your buyer to look at the property and offer it to him for 5 or 10k more.

I have all of my buyers locked into an NCND ( Non Disclosure Non Circumvent)contract so I am better protected if they attempt to go around me. This is why I stress building relationships with your buyers, take them to lunch, get to know them. They will be less likely to go around you if they get personal with you.

I have even closed on the property in the name of an LLC and then sold the LLC to a buyer. But that is just one of many strategies you could use on these properties... get creative to see what works for you.

You have to remember a few things.

1 - We are more motivated than the buyers or they'd be doing the same thing themselves.

2 - If the buyer's stupid enough to go around you, how many times are you going to keep bringing them deals?

3 - It's a lot easier for the buyer (if they have common sense) to let you do the work and keep finding them deals so they can use their time more wisely at what they do best.

Everybody worries about their buyers going around them, I still have yet to hear somebody worrying about not being able to get enough deals to keep up with the demands of their buyers. Just sayin'

I knew I saw a website here on DG where you could map out REO properties... it's http://www.huduser.org/REO/reo.html

Maybe this will help with Valler's suggestion.

That's what I thought. I guess it's best to "schmooze so you don't lose"

Do you have a copy of your NDNC contract in the mentoring section of the RBBP?

Thanks again,

Andy Sager
DG's AndyS

More than likely, the bank will want closing to happen at their title company. So, you contact that company & tell them you are going to be signing papers at your title co. They will send everything to your title co., so all they need to do is setup the b to c transaction before hand. So, when the papers get there, they apply the funds appropriately, and you are still ok doing the transaction.

At that point, they send everything back to the bank's co. & everything is good to go.

Was just out the other day and found two of these properties, my self, I put a bandit sign in yard for each one, the phone started ringing, people wanting to know if its available to rent or buy. Looked up the address on tax assessor site, and sure enough a mortage company owns it. Will be contacting them and make a offer. Really nice house in a really nice location. Well keep you posted on this one...

That is an awesome idea! Put a bandit sign in the yard of a shadow property... however my concern would be if the bank's maintenance Co comes to mow the grass and informs the bank of your sign.

How was your sign worded I am curious?

@Pinballdan
Yeah I agree with Mark on this..

If they are a true "Investor" they are looking out for their future investments, and if you are brining them a good deal, they are going to EXPECT that you're doing so for a fee. As long as you're doing so for a reasonable fee and leaving enough on the bone for them to make a great profit, you're not going to find a investor who will do that.

That being said, if your asking for a $10,000 fee for a $150,000 property deal which needs extensive rehab and leaves a low ROI for the buyer... ehhh you might want to re-look that price and maybe settle for the more reasonable $5,000 fee.

Just my opinion...

Carol,

I took a look at the HUD Website you mentioned... http://www.huduser.org/REO/reo.html

Since these banks aren't allowed to "release" those properties so not to flood the market, you think they would be listed in the REO portal??? Maybe I'm wrong... (and I could be) but I'm thinking they have to hold these properties in a way that the public doesn't "directly or indirectly" get effected via the local/national markets... (if that makes any sense) After reading a few articles on these Shadow Inventories, I found that the government is BIG on keeping these out of public eye so not to give people (public/corporate) the opportunities to speculate... which would end up effecting the market.

But...

I'm guessing that there has to be SOME sort of paper trail on these properties that is public accessible which we can exploit to our benefit. AND I think I might have a REALLY good lead on this... I'll be sure (I promise) to get back to you soon on where this goes...

No they would not have them listed anywhere. You asked about a website for reo listings so I thought of this one. Shadow inventory would not be included in this portal, sorry for the confusion.

A few months ago I found a vacant property. Research of public records shows it is owned by Deutsche Bank. They took it back at a foreclosure sale 3 years ago. House has never been on the MLS...vacant for 3 years. Called Deutsche Bank and got sent to a voice menu. One of the options was property inquiries. The recording gave a fax number and said you needed to fax your inquiry. So I faxed a letter and a copy of the Trustees Deed at Sale and asked if they were interested in selling. Fax, fax, fax....no response. Drove 80 miles to the address of an office they had hoping to speak to someone. Got there and the guard at the front desk told me the office wasn't open to the public. Any suggestions other than my wife getting a job at Deutsch Bank to get in on the inside?

I would never expect to make $10k on a deal like this so yea..I'm thinking 1k-3k range depending on the % the buyer wants to have.CAROL!!How do I know what the right price is??!!!? How dose a person know when the price is good enough?I guess that's why you build a buyers list first & get the % that each buyer wants to buy at??I'm starting to see why you have such a BIG buyers list!!

If you negotiate properly with the bank there is no reason you cannot make 10k. The key is in the negotiating with the bank. You MUST make your offer low enough that it still creates a good deal for the buyer. If the deal still provides him with a 30% return after rehab and after your 10k fee why would he not buy it?

You must negotiate the purchase price down low enough to make that happen! How much you make depends on your negotiating. Ex. I found a shadow property that had a 220k arv, needed estimated 20k rehab. I offered the bank 100k to start and we ended up settling on 120k. This left the buyer with a 30%+ profit ( 60k) and paid me my 10k fee.
Granted 10k may be a bit high if you are negotiating properties that have a 100k arv. In this case you must base your profit off the deal at hand. 30% profit for your buyer on a property with 100k retail value would be aprox 30k so yes a 10k fee would be extreme in this case.

The fee you charge all depends on the market your in. Remember... IF YOUR NOT EMBARRASSED ABOUT YOUR OFFER YOU OFFERED TOO MUCH!!! My 10k was only meant to be a guide.

Estimate your wholesale fee to be aprox. 5% of the After repair value of the property.

I say estimate because you must take into consideration the rehab costs and the buyers 30% profit ( Buyers expect to make 30% profit after rehab costs and fees are paid. General rule of thumb on a wholesale deal is 70/30. 70% invested/ 30% profit.) If your fee can be added and still give the buyer a 30% return than you will have no problem moving that property! Sometimes you will get a property at such a great purchase price that there is enough room in the 70/30 to add a larger fee for yourself ( maybe 7k instead of 5k), it all depends on your negotiations with the bank.

I heard of this shadow inventory just about two weeks ago online on some other site.
We as an investors need to get the ball rolling and start making some relationships with these banks, before the public starts catching on. I don't think that would be anytime soon, but still it would be a good idea to start early.
Thanks for alerting us to this inventory!
Just curious to know, are you talking to ALL banks, or are you focusing on smaller community banks?
Thanks Carol!

RENinja

Hi...Thanks for the great advice i will go out now with my 2 yrs old daughter and will look for winterized property around our neighborhood again thank you so much! i love reading your journal... -Farrah-

what a goldmine of information Carol. Thank you for sharing!

Just to add to Carols post, my husband works for CitiMortgage and he has buyers approaching him to buy his "Toxic-Paper" all the time, he has to turn them away. They are not anywhere on the books to be had, he is forbidden to do anything with these soon-to-be-foreclosed on mortagages, meanwhile they are sitting in a wate-land until the bank decides when to move on them! This was a gold-nugget thanks for the post CArol!!

Student of the Success Academy

Can my agent work with me on these, or not???

Thanks for that gem Carol. I see litery hundreds of vacant properties around my way and all I see a Dollar signs on them. Now I know what to do. You are the *ish Carol! Oh and buy the way, I read this just before I was about to go put I my first bandit signs!

Ricky

Hi Carol and all...

The work around is in finding the BIG reo assignment teams in a given area. Lots of agents have REO's, but there are only a couple teams that handle the volume.

Typically the big teams are big enough that they are in several states at a time.

They have both the active REO assignments as well as pre listing REO assignments. There is a window of time the team has to process a number of 'tasks' prior to listing an asset. These tasks can take anywhere from a few days to a few weeks. These properties cannot be actively listed while in this process. But they can be SOLD.

Many of these properties are being evaluated for work orders, or going straight back into investor pools to be offered to the large real estate investment trusts to be sold in bulk.

Most agents have no clue what you will be talking about. But... when you find the BIG REO assignment teams, (and there are only a few in each state) they will know what you are talking about and you can make your offers almost without competition. And you will mostly get to see those properties that need work orders completed because that is why they get hung up in this stage of the pipeline for a short time. If you can get to that inventory, you can have a 'free look' at stuff before it hits the market. And many of those properties will be on the bubble of whether the lender wants to do the work orders prior to listing, or let it go at investor pricing.

Happy Investing!

Wow, there is always so much more to learn! Pretty neat thanks Brad. Anyone know of a "team" in TX??

Also to answer your question Tammy, Yes I would think you can have your Realtor work with you on these. The assignments can only be paid directly to you by your buyer though, as banks do not allow REO's to be assigned if I'm not mistaken.

Carol,

I have gone into our banks localy and they will not talk to me about any of the REOS that are here in our small area. I get "We contact them out to the local Real Estate Agencys. We will not sell to an Investor or Wholesaler. I have been beating my head against the wall for weeks with them..

Thank you for the website infor I will try that. I woulod like to see some of the REOs get sold her in our area. Like that's going to happen.

Thanks again. DeeDee

Are you going to locally founded or local community banks? I understand it is very difficult to deal with national banks like Chase and Capital One. It also may be you are just not talking to the right person. Also, are you able to state that you can move the bank's inventory much more quickly with your unique RE techniques, or are they cutting you off immediately? If so, how stupid is that. Maybe you ought to see if you can get a good deal through whoever the bank lists it with.
This is a very curious situation.
Hope that helps and good luck! Don't give up!

RENinja