As a listing broker, getting new leads is always a priority. However, REO and HUD listings (bank-owned properties) are a completely different ballgame than your average listing. If you manage to become a bank’s preferred listing broker, HUD and REO listings can be a lucrative and steady source of new inventory. Besides, it is an excellent way to attract investors and potential buyers who may be interested in purchasing a foreclosed home for a bargain.

However, it is not as simple as calling the owner and convincing them that you are the best guy (or gal) for the job. So, how can you become a HUD or REO listing broker? Here are the steps to follow to get access to these critical listings.

Apply to become an approved broker for government-owned properties

Two leading government agencies are involved with distressed properties: the Department of Housing and Urban Development (HUD) and Fannie Mae. If you want to be considered as a listing broker for HUD properties, you will need to apply to be approved on their websites.

They will contact you afterward if they are interested in your candidacy. They will then inform you of the procedure to follow if they need an agent in your area.

To become a Fannie Mae HomePath listing agent, apply here.

To submit an application to become a listing broker for HUD properties, apply here.

Contact your local banks and credit unions for REO listings

Bank-owned properties and REO listings are often managed directly by the lending institutions that now own them. Your best bet is usually to apply directly as they each have a different process for assigning a listing agent to a foreclosed property.

National banks may be challenging to convince since they already have an established network of trusted agents. Besides, many of them only do business with asset management companies to handle the volume of foreclosed properties they deal with. However, local institutions are sometimes easier to connect with.

Connect with Asset Management Companies who handle REO properties

Larger banks and lenders outsource typically outsource their foreclosure listings to asset management companies, who are in charge of assigning the properties to listing brokers, among other tasks.

In order to obtain listings from these companies, you will need to apply individually. There are hundreds to choose from, and their requirements in terms of experience but also their reputation in the business vary. They will typically require you to complete an extensive amount of BPOs for them before assigning you the first listing.

Complete Broker Price Opinions (BPOs)

Whether you are applying with a government agency, a lending institution, or an asset management company, you will likely have to do many BPOs before getting your first listing. In fact, Broker Price Opinions are a necessary rite of passage to show your experience and establish a relationship with the institution.

The more BPOs you do and the higher the quality of your work, the more likely you are to get a listing. Although they typically don’t pay much, don’t neglect them.

REO listings often come in waves, on an as-needed basis. Unfortunately, a good part of getting started as a listing broker for foreclosure listings comes down to luck and being in the right place at the right time.

Everyone loves a good bargain. The truth is, homes are expensive. Just like people look for deals on retail products like jackets and flat screens, people love saving money on houses. One of the quickest ways to score a great deal on a home purchase is by taking advantage of the foreclosure market. Investing in real estate can be very rewarding, especially when you can land a huge discount on your investment. Purchasing a foreclosed home is a much easier process than buying a home from a regular seller. If you’re looking for a quick buy, you’ll definitely want to look at foreclosed homes.

What is a foreclosure sale

Foreclosure occurs when a  homeowner fails to make payments on their house. Foreclosure is a legal process whereby the owner of the home forfeits the legal rights to the home. Once an owner has defaulted on their payments the lender then takes control of the home and attempts to gain back as much as possible. From there the home goes to a foreclosure auction. If it does not sell at auction, then the lending institution takes ownership of it and it becomes a real estate owned property, or an REO. In that scenario the home may be listed on an MLS or multiple listing services. As a result of the  need to sell the home being foreclosed, the lender will list the price the house for a lot less than it is actually worth. This is where buyers can score big savings. For homes being sold at auction, the lender typically opens the bid at whatever is remaining on the loan. 

Find a broker and get pre-approved

Like with any home purchase, the very first thing you’ll want to do is get pre-approved by a lender. Once that is done, begin the process of searching for a broker who deals directly with banks that sell foreclosed homes. Another tip is to search online databases of foreclosed homes. Look at local real estate listings too as often there are filters that allow you to see only foreclosed homes. Look for the letters REO as that indicates a property that is under the ownership of a bank. Sites such as Hubzu is a good tool for finding foreclosed properties and posts current online auctions.

Find an agent experienced in foreclosed homes

Another way that foreclosure sales are easier is that they typically only require one agent during the process. Be prepared to move quickly as foreclosure sales move at a very fast pace. When looking for an agent to represent you during this process, look for the designations; Certified Distressed Property Expert (CDPE) and Short Sales and Foreclosure Resources (SSFR). It is possible to skip this step and work directly with a broker in order to save commission fees. Banks hire their own brokers to deal specifically with REO properties. However, most buyers feel more comfortable when they have an agent directly working on their behalf. 

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Look at comps before making an effort

Before making any offers make sure to have your agent run a comparative market analysis. This helps you understand the recent sale prices of comparable properties, or ‘comps.’ When doing a CMA, your agent will typically look through the last 180 days and looks for factors such as the pace of home sales and tax assessment history. 

If foreclosed homes in your area are selling quickly, be prepared to make the higher bid, remember, the price is likely already discounted. There’s no real way to tell what the bank’s bottom line will be, but usually foreclosure sales go very quickly. Remember, foreclosure prices are usually already discounted, weighing in significantly less than the actual value, so an offer that is too low may be seen as a non-started by the bank. 

Get an inspection and find someone to help with repairs

With foreclosure homes, there’s a good chance that you will have to do some repairs. In a foreclosure sale, the buyer pays for any and all repairs. Since the home is owned by the bank in this case, there is no other party to do the repairs. Foreclosures homes are sold ‘as is.’ You will definitely want a thorough inspection of the house to know exactly what you’re buying. The bank does not make any guarantees regarding the condition of a foreclosed home. 

Risk of buying a foreclosed homes at auction

One benefit to buying a house at a foreclosure auction is that there usually aren’t many bidders. With less people competing, the better your chances are of getting a great deal on the house. A downside to buying at a foreclosure auction is that in many cases the bank requires cash payments. Sometimes you may need to have the cash on hand before you even make a bid. Another downside is that there are no inspections for homes that go on auction. Almost all auctions require some form of earnest payment up front and often they are non-refundable. 

Getting a great deal buying foreclosed homes

As previously noted, if the foreclosed home does not sell at auction, it then becomes an REO property. This is where people can get big savings on a home (provided they understand it will likely need lots of repairs). The main reason why REOs are priced lower than regular listings is because they often need work, typically so much so that they don’t qualify for financing. That alone clears out 75% of potential buyers which again, lowers the price. This is where an investor can swoop in and purchase a home way below the market rate and the home’s actual value.

Making an offer

Once you have worked with your agent to find a foreclosure home to buy, the next step is to make an offer. This process is similar making an offer on regular listings but involves more paperwork. When making an offer keep in mind that banks have a few requirements. First, you’ll need a pre-qualification latter before they even consider an offer from you. In many cases you’ll also be required to submit a copy of your earnest money check. Sometimes the check will need to be certified funds.

Note that while banks typically want to unload foreclosed homes quickly, that does not mean that you should make a low offer or expect them to take anything. The price will already be discounted and like any regular seller, the bank will want to get as much money as possible. Like with any sale, the amount below the listed price that the bank will take depends on things such as how long it has been on the market.

Conclusion

When done right, buying foreclosed homes can be an enormously rewarding investment. All real estate investments take time and effort. Foreclosed homes are a great way to find properties at discounted prices. This can be an especially fruitful market for people looking to do flips. As a note to fix and flippers, though your investment may be less, you may still have to do a lot of repairs, so be prepared to invest a little more into the fix before the flip. Each state has their own laws about foreclosure sales and the process can be very tricky.

Starting out as a real estate agent at a young age can be overwhelming. Being a real estate agent is a very social job that depends on knowing where to look to find new clients. If you’re young and or new to an area, it can seem impossible to be successful. You’ll think to yourself “how am I supposed to do this when I don’t know anyone?” Yet that doesn’t have to be the end of your hopes and dreams. Despite some setbacks that are expected for younger agents, young real estate agents in their twenties can and have enjoyed successful careers in the industry. 

How Young Real Estate Agents find Clients

If you’ve just moved to an area or don’t know many people, it can be hard to find new clients. Older agents with more experience typically are more trusted by prospective buyers. Younger agents thus face a problem of not having enough proven experience and a lack of clientele. 

One way to streamline this process is simply going to as many networking events as possible. Join your local young professionals networking group, go to industry mixers, find anyway possible to get involved in the community. The more you network the larger you pool will get and you’ll be able to find clients more easily. Find different and clever ways to bring up your profession without sounding like an elevator pitch. 

Networking with busier agents in your office is another way to streamline clients. Sometimes seasoned agents who aren’t looking to take on new clients will farm out events such as hosting open houses. 

Don’t Just Go for the Money

In truth, the payment mechanisms in place for real estate agents are not the best. The average age for real estate agents is 57 according to the National Association of Realtors. Pay is largely based on a split commission. The agents work for the brokerage. When the brokerage gets paid their commission, the agents get a cut of that commission. Young agents typically get paid somewhere around 30-40%. As with most things, the more experience you have, the higher your commission is.

It’s important to pick the right broker, however, keep in mind that simply going after the broker that pays the highest commission split is not necessarily the best route. Many young real estate agents want to get paid, but there’s great value in picking a broker that provides the experience necessary to get higher commission splits later on in your career. Many agents fail in the industry because they don’t get the right training. Agents that select brokerages that work hard to train their agents and equip them with the necessary skills to succeed in the business are better off than those who simply go with the higher commission split. Earning a 100% split doesn’t help when you aren’t selling houses. Successful young real estate agents starting their career will seek out the best happy medium between the two.

Overcoming the ‘Age’ Question

Like with most things, age will be a factor only so long as you allow it to be. It’s true that some will be less likely to trust a younger less experienced agent, but the reality is that everyone begins with zero experience. It sounds cliché but age is only an issue if you let it be an issue. Most buyers want an agent who is competent, returns calls, knows what they’re doing, and who communicate well and effectively. If you can demonstrate these things to clients, they will trust you. There may be agents in their 50s who are not as good at those particular things. If you can demonstrate that you are, people will notice and your age will cease to be an issue. 

Ultimately, when people ask things like ‘how old are you’ or ‘how long have you been in the business,’ what they are really trying to find out is, ‘do you know what you’re doing?’ If you are competent and know what you’re doing, then it will not be a problem. People want someone they can trust. Again, this is where finding the right brokerage is key. If anyone questions your experience you can then simply note that you are a part of a well experienced office that you may consult at any time. 

Another angle is that younger agents have more time as opposed to more experienced agents who have long and congested client lists. By having more time you can offer a more personable experience and dedicate more fully to your client.

Advantages a Young Real Estate Agents

While being young in the real estate industry can provide some challenges, there are also many advantages to being young. Most agents are in their 40s and 50s. Many begin their careers later in life. Starting early can be an advantage as you’re still at a phase of your life prime for soaking up information and gaining experience. The more experience you have, the more successful you can be. Starting younger allows you to learn the trade in and out and gain great experience. Some agents who start later in their career are thrown into the industry with little to no experience and have to teach themselves along the way. 

Another huge advantage young people have right now is the ability to adapt to technology. While not necessarily universally true, in general, younger people are more tech savvy and can use technology and social media to market themselves in new ways that didn’t exist in decades past. Things like promotional videos are great ways to market individuals and real estate investor businesses. By using technology to their advantage and marketing themselves, young agents can make up for their lack of experience and use these tools to gain clients. 

Promotional videos are all the rage when it comes to promoting your real estate investing business. It is an excellent way to reinforce your branding and reach out to potential clients and investors.

However, sitting in front of the camera for the first time can be intimidating. You will need the appropriate website platform for your investment company, as well as the right content to attract viewers.

Where should you start? If you want to use this new media to your advantage, here are ten videos you will want to make to promote your real estate investing brand.

Listing videos

Real estate investors often don’t have the time and ability to visit each property in person. Many of them live far away, and most have a full-time job. A video listing such as this commercial retail space allows investors to get a better idea of what kind of property you are dealing with.

Interviewing former clients and investors

Satisfied clients and investors are your best publicity. Set up a short interview with people who have worked with you before so that clients who are on the fence can get a taste of what investing with you could be like.

Introducing your partners

As a real estate investing business, you likely work with many different actors that take part in the transaction, from loan officers to contractors. Potential clients will appreciate knowing more about how you work and who you work with.

Tell your story

Investing in real estate is primarily based on trust. If you want your clients to trust you, what better way than to create a short YouTube video about yourself, your success stories, and how you got where you are now.

Real estate investing whiteboard videos

Whiteboard videos such as this one require very little material. They are an excellent way to cover topics that may be of interest to your investors and establish yourself as knowledgeable in the matter.

Investing case study

When a particularly successful deal closes, use it to your advantage. Make a YouTube video showing the ins and outs of how it came together and how potential investors can achieve the same results.

Q&A streaming session

Even accomplished investors often have questions. Organize a Q&A session and stream out as you answer their interrogations and maybe calm their worries about a specific point.

Introduce your neighborhood

In real estate, location is everything. It is particularly true when it comes to real estate investing. Your clients may not be familiar with the area you are servicing. It is up to you to convince them to spend their hard-earned money in the neighborhood. And what better way to do so, but to explain on YouTube why it has the best potential and added value?

End-of-the-year recap videos

As the year comes to an end, it is the perfect time to get on the highlights of the past year. Talk about your achievements, the things you want to improve, as well as your objectives for the new year. Your clients and potential investors will appreciate getting a rundown of what you have been up to in the past 12 months.

How-to and tips on investing

What do you do when you want an answer to a question? You Google it, of course! Videos have been ranking higher and higher in results in recent years. It is an excellent way to bring new eyes to your real estate investing company. A short video explaining common issues in real estate investment is worth a thousand words. It also pays off to film a brief recap of some of your most detailed blog posts.

In commercial real estate, building owners can make certain repairs and modifications for a particular tenant. The real estate term for these type of changes is a ‘leasehold improvement’ or ‘tenant improvements.’ Tenant improvements are any changes or alterations made to the interior of commercial properties by the building owner to accommodate the specific needs of a particular tenant, typically per the terms of their lease agreement. 

What are tenant improvements

Examples of tenant improvements are range from changes to the floors and walls to the ceilings, lighting and more. Essentially, these are anything a tenant needs in order to operate their business. Usually either the tenant or the landlord pays for the changes

While these costs can sometimes be very expensive, typically building owners will have little problem assuming the costs of the repairs. One reason being, it allows them to increase rents, and another being that in the long term it increases the overall value of the property. In many cases these alterations end up paying for themselves. 

One example of a tenant improvement is if a new restaurant moves into a rental space and requests a new floor plan to accommodate their kitchen, and then new kitchen equipment installation on top of that. Another example may be if  a music studio wants the acoustics redone. Though the landlord does the repairs, that does not necessarily mean that they pay for the repairs.

Who does what and who pays?

The phrase “turnkey build-out” in real estate refers to these kind of repairs. The principle is that by completing the improvements prior to the move in date of the tenant, they can then effectively ‘turn the key’ and walk right in and begin their operations. As previously noted, who pays for these changes depends on the agreement struck between the landlord and tenant during the lease write-up. 

While it may make sense for the tenant to pay for these repairs, in many instances the building owners are more than willing to shell out money for the repairs. Doing these kind of repairs allows the landlord to increase rent rates. For example, a landlord could lease out space for $4,000 a month for 5 years without repairs and at the end they would end up collecting $240,000 over that time period. If however, they spend $100,000 in repair costs, they can increase their rent to $5,000 or more. With that, it only takes 2 years to make their money back (and then some) and over 5 years they end up collecting $300,000.

Increasing value with tenant improvements

Another reason why building owners often willingly assume the costs of tenant improvements is that in the long run, these improvements may end up increasing the value of their building, allowing them to raise rents throughout the whole building, not just to one particular renter. In that case, over time, their return on investment will increase significantly. 

The value of a commercial property is calculated by what is known as a CAP rate, which is the total net operating income divided by the property value. So for example, if the value of the property is 200,000 and your NOI is 20,000, the CAP rate for the property is 10%. At that rate, if you wanted to increase the value of your real estate property, you could increase your NOI. If you were to bring the NOI up to $12,000 or even $15,000 then the value would rise accordingly to $120,000 or $150,000. Thus, in the long run, paying a bit more in the short term allows the landlord to not just increase rates and collect more income but also directly helps increase the overall value of the building. It’s for that reason that landlords don’t immediately throw a fuss about assuming tenant improvement costs.

Other advantages to tenant improvements

One other way that tenant improvements can be beneficial to commercial real estate properties is by making your rental space easier to rent out in the future to another tenant. Once you make the improvements you then set up the space perfectly for a new tenant once the current one leaves, particularly a tenant in the same industry. If you rent out space to a restaurant and make improvements for that restaurant, you have now made it much easier to rent to a new restaurant.

The downside to such improvements occur when the improvements made are hyper specific to one industry, making it harder to rent to anyone else outside of that industry, particularly if it is not a very prominent industry or is more niche. 

Conclusion

Though tenant improvements may be expensive up front, the long term value that they can add to a property is very rewarding. Landlords who are willing to pay make their money back quickly and can in turn increase rent rates to pull in more income. From raising rates, the overall value of the property increases by raising the CAP rate. Picking the right tenant and making the right improvements is important and if done right, you add value to your real estate property.