Using REO Flips to Build A Base of Private Lenders

In a previous article, I pointed out that coming up with the funding to support commercial real estate purchases may be both intimidating and even prohibitive for many real estate investors.

If this scenario rings true for you, then you might consider something a little more basic to help build some investing momentum and to also put some cash in your pocket as you’re doing so. One of the best ways to make some big bucks in the current real estate market is by flipping REO properties.

Just so we’re all on the same page, REO properties are those that have been foreclosed on, and are now back in the hands of the bank. There is no homeowner to negotiate with, properties generally have clear title, they are often discounted, and investing in them is very much a repeatable process.

Now, let’s talk about how to put together funding for all of this. Private lenders are a great to pursue and I’ve worked with many a real estate investor who has had great success pursuing funding from private investors. What if a private lender doesn’t have the funds to support a commercial real estate purchase, or just wants to start small?

This is where the REO strategy comes in. If you need down payment funds and repair costs for an REO that can be had for $100,000, you might only need $50,000 from a private lender to do the deal, as opposed to several hundred thousand dollars for a commercial property. Does this open doors for more private lenders? Sure it does.

When you pursue REO flips for profit, private lenders come into play in two ways. First, they may be the immediate funding sources you need to manage your REO acquisitions. They are earning interest in the deal and you are able to recognize the impressive profit potential that lies with these kinds of properties.

Second, what do you think happens when a private lender (or lenders) invests successfully with you on several smaller deals? One is that they come back for more and may eventually want to “up the ante”, looking to do bigger and better things behind your direction. Second, they may tell their friends and colleagues about what they are doing, giving you access to even more capital as time goes on.

It’s never a bad thing to start small when you are just getting going in a new business. This is true for both properties and the funding for them, so keep a good perspective, build your business the way you need to for your situation, and watch success grow right in front of you!