How to Find Good Deals for Bank Owned Homes (REPOS)
by Sean Williams 

It can be summed up best as a cliché, "Find the motivated seller and you will find good deals". Fortunately for most of us there are ample motivated sellers in today's market, we call them banks and finance companies. The reason they are motivated can be a simple lesson in supply and demand. The peak of this industry saw production of roughly 400k homes per year, which is no small number. Historically the mobile home industry as many others has seen very cyclical patterns. The flow is something like this:

• Production / purchases increase (more trailers built, sold and financed)
• Enter more financial institutions to jump on "new profits" (more aggressive financing)
• Production continues to reach new heights (the saga continues)
• Aggressive lending to compete in market allows for compromise in lending requirements
• (Market expands under false conditions…. disaster on horizon)
• Defaults and repos begin to increase, as a result of compromise in lending practices
• (Begin downward trend)
• Production slows down as defaults increase
• (Fewer trailers built, sold & financed)
• Repossession / defaults continue to escalate
• (Market tanking)
• Financing begins to back off as a result of losses followed by lenders exiting of marketplace
• (Bad just went to worse)
• Repossessions hit peak
• (Market begins to reset)
• New lenders see opportunities and enter market

Game starts all over again!

What we have seen in today's market defies all statistics going back 30 years in the industry. Most cycles are on a 7 year pace, unfortunately this go around few lenders re-entered the business creating a void or an opportunity depending on how you look at things.

I have never been able to confirm just how many repos are available in the marketplace but some industry folks say those numbers could be as high as 150,000 homes. Now that we have determined that banks are motivated sellers we need to discuss how to buy deals from them. Even though we know they are interested in selling their non performing assets we need to figure out with each bank what their strategy is and determine if it fits what we are looking for. For example one particular bank in the business is only interested in what they call "retailing their homes". They are of the mindset that it takes spending money to make money. They have determined that if it costs them 10k to make an extra 15k, they are still ahead of the game. Makes sense right? With this particular strategy the bank will be marketing their homes to end buyers who are not concerned about paying retail dollars. This strategy will work as long as the bank has the capital to keep the machine moving and the people (end customers) to sell homes too. This option creates a small window for an investor to find a deal that they can make work but they are out there! The other option available to banks is the "wholesale model", it implies just as it sounds; liquidating homes at lower prices before adding money to the deal in the hopes that the volume of homes sold will make up for the loss in recovery dollars. Typically a lender who uses this model will do everything they can to cut costs and avoid adding anything that isn't absolutely necessary to their outstanding balance. These lenders work from the "as is where is" side of things and will typically work deals ranging from 20-40 cents on the dollar.

As mentioned above not all banks have the same motivation or strategy for liquidating assets so you need to figure out what your objective is so that you can align yourself with a bank that fits your needs. This isn't to say that a "retail model" liquidation strategy will never wholesale a home, anything can happen on any given day.

I have found our best deals come from banks that I understand. By that I mean, I have spent the time to research the company, built a good rapport and solve their problems. Sounds complicated and time consuming but its not. I might be working with xyz bank rep who causally mentions that there is a big push from senior management to sell 147 units this month. I would follow up with a question like, "Any particular type of units". And a response might be yea; all of my aged (varies by bank, typically 180 day old accounts).

Now I know that I have a better than average chance at negotiating a price on the units there is a big push for selling. So while others are begging for the new "repo" list hunting for the newest homes I would look specifically for the homes which have been around awhile. Yes, this takes time but it's worth it. I listened to their need and have figured a way to help solve their problem. It really gets back to basic sales or business, find a need and fill it!

I call the issues or trends which are moving targets "hot buttons". In the above example the hot button was aged units. From my experience you have many hot buttons but typically its two bigger issues they are concerned with. Turn or Recovery. Turn is the amount of homes they move (sell) in one month in relation to the rest of the outstanding inventory. Recovery is expressed as a percentage returned from initial investment, although each bank has a slightly different formula.

I like to keep it simple so I use numbers like a 100 dollar principle balance home that I buy for 70 dollars would equal a 70% recovery deal for the bank. Sometimes obviously principle balance and the loan payoff can be different as a result of legal fees or additional items the bank has had to pay for after or during the repossession process. Although it can change recovery percentages slightly it's usually not significant enough to matter to the average investor or bank.

Another negotiating strategy that one may use in obtaining better deals is purchasing in bulk or what many in the business refer to is a package. The principle behind it is the same as mentioned above in that you help the bank out by allowing them to "work the numbers how they see fit". Example you are interested in purchasing (1) home with a balance of 20k, you make an offer of 10k which will fetch the bank a 50% recovery. Now suppose you decide to purchase 5 homes with a balance of 20k a piece or 100k total but the same 50% recovery (assuming you pay 50K) could yield the bank a totally different recovery. They might apply 20 to one account for a 100% recovery, 5 to another for 20% and so on. The end result is a higher reported number for them which in turn should allow you better pricing. In this instance you might be able to get 5 homes for 7k a piece and save you 15k.

Although I doubt any bank will explain it as such but it's simple economics, the more you buy the greater discount you should be able to obtain. You need not be a huge company to apply this principle as it's easy in investing circles to partner up with other investors and pool your money. Each bank or finance company in the industry has guidelines as to what will constitute a package but I believe you can do it with as few as 4 homes. One needs to remember that like anything else in life relationships are everything. One manager might not manage his or her inventory the same as another in the department so its critical that you figure out how they like to do business. Don't get discouraged by the voicemail maze. Be polite, Professional and persistent. It is imperative that you adapt your strategy so that you help them in helping yourself.

After all, that's really what it's all about isn't it??

Good Investing

Sean Williams

Sean Williams works with mobile home park owners all over the country to purchase mobile homes at wholesale prices. His company is called Infinity Mangement Group. Sean can be reached at SWilliams@InfinityREO.com.