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Wholesaling Bank-Owned (REO) Houses (No, it’s not impossible.)

Home » Blog » Wholesaling Houses » Wholesaling Bank-Owned (REO) Houses (No, it’s not impossible.)

In my last post, I explained how to wholesale a house. That post covered what wholesaling is and how to assign contracts and double-close. That post handled wholesaling as it pertained to working with motivated sellers (buying from private owners, not banks or listed properties).

Today’s post is going to cover wholesaling houses that are bank-owned. Bank-owned houses are also known as REOs (real estate owned).

First, have you joined our private FlippingJunkie facebook group? Come network with us!

Wholesaling REOs Basics

The basics of wholesaling REOs involves finding listed bank-owned properties and putting them under contract, only to sell them as-is to other investors. You are not flipping houses in the normal sense. You aren’t intending to close on the house, fix it up and sell it. You are simply making offers, getting one under contract, finding a buyer and selling the house to them. I’ll break this down into a process below.

The Typical Process

  1. Get a List of Bank-Owned (REO) Houses – You’ve got to get a list of houses to look at to make offers on. The best way to do so is by contacting REO Realtors. A good place to get contact information for these Realtors that list bank-owned real estate is by visiting the Member Search. You will likely need a buyer’s agent to schedule to see the houses. If you contact an REO agent, they should be able to recommend somebody in their office.
  2. Visit the REO Houses – Go and take a look at the houses and figure out what you will spend on repairs. If you are not sure what repairs will cost (as most people don’t), try to bring an experienced investor (possibly your best potential cash buyer) or take an investor-friendly contractor. Have whomever you take give you rough ideas and rules-of-thumb regarding replacing everything (even if that particular house doesn’t need it). This way you will have a list of repair costs for the other houses you go and see. Keep a separate list of the repairs that particular house needs though so that you can calculate how much you can offer for it.
  3. Calculate and Make Offer – In order to calculate your maximum allowable offer (MAO), you need to know how much your investor buyers are going to be willing to pay for it. Typical investors want to buy flip properties for about 70% of what they will sell for after they are fixed up, minus the cost of repairs. So if the house will sell for $200,000 and it needs $20,000 in repairs, they will likely be willing to pay $120,000 (200,000 * 70% – 20,000).This is the most they might pay (if they base their purchase price on the 70% formula) and you still need to include your wholesale fee.For your wholesale fee, you might want to shoot for $10,000. If that is the case, the most you could offer for it would be $110,000. Don’t offer that much. You need room to negotiate and the banks will want to negotiate. I’d offer about $100,000 and slowly go up from there.

    Here is where a big difference is between buying from banks versus motivated sellers. You will not likely be able to get away with $10 or $25 as earnest money. You will probably need $1,000 and sometimes even 10% of the offer amount. This amount will usually be spelled out in the listing for each house (how much they expect for earnest money). Of course, everything is negotiable, but it can be difficult to get them to accept less.

    You will also need to know whether your offer will be all cash or involve a loan (hard money loan or a loan from a private money lender). If all cash, they will want to see proof of funds (usually a bank statement – tip: it doesn’t have to be your bank statement). If a loan is involved, you will need a pre-approval letter (private and hard money lenders will be able to provide you with one).

  4. Offer Is Accepted – Once the bank agrees to your offer, you will be required to sign addenda (forms specifying all sorts of things about how you are buying it as-is and cannot assign the contract – usually). VERY IMPORTANT: Make sure the contract and addenda that you have to sign does not have a restriction that will keep you from being able to immediately resell the property. If it does, you can either refuse to accept it and cross it out (which they might/might not accept) or just back out of the deal.The bank will usually dictate which title company must be used. Once again negotiable but can be difficult to get them to accept using one you want. You must tell them you want to use your title company when you make the offer.It’s best to use a title company that you have found beforehand that will do double-closings. It’s not the end of the world if they won’t let you specify which title company you want to use. Even if you have to use theirs, you can tell the title company that they want to use that you want to close your side of the transaction with your closer (at your preferred title company).
  5. Find a Buyer – You’ve got it under contract now and will need to find a buyer. Cash buyers are who you need to find. Don’t even think about dealing with people that need to get a conventional loan. You want investors that can either pay cash, are using hard money, private money, line of credit, etc.You should have already been looking for cash buyers while you were looking for deals. You should also have been secretly rating how strong they are as buyers (cash and buy a lot buyers go on the top of your list). Start by calling up the top ones one-at-a-time and offering the deal to them. If you just email blast a list, sometimes the serious buyers won’t want to waste their time competing with newbies for the deal (whether a valid assumption or not) and will just delete your email.If a buyer likes the deal, you will need to contract to sell to them. You will sign the contract as the seller of the house and them as the buyer. Demand non-refundable earnest money from your buyer so that they are less likely to walk away and not close (which means you can’t close – yikes!). $2,000 or more should do the trick.Make sure your contract states that it is “subject to you being able to provide clear title” (which you can’t if, for whatever reason, the bank doesn’t close – in which case you can’t sell it – which is a shame, but not yikes). You also need to make sure your buyer plans to close the deal themselves and are not going to try to wholesale your wholesale (put a clause in the contract stating it cannot be assigned). Take this contract to your title company and get it receipted.
  6. Simultaneous Close, or Double-Close – You can’t assign a contract on a bank-owned REO deal. You can however simultaneous close or double-close.
  7. Get Paid – Your wholesale fee (difference in your purchase price from the bank and the amount you sold to your buyer) is paid to you at the closing of the B transaction (see last week’s post for details on simultaneous and double-closings to understand what the B transaction is).


Wholesaling REO’s Timelines and Tips

  • Typical timeframesTypically, a bank will take 4 weeks to close. This gives you a good amount of time to make sure you have a buyer ready to go to close the deal.If the deal is a good one, you should have no problem finding a buyer willing to buy it. If you are having a hard time finding a buyer, you are probably asking too much and will have to lower your asking price (your wholesale fee must be reduced at this point to be able to lower your asking price).
  • You can have your end buyer agree to pay all closing costs. If you just specify they are to pay all closing costs on your contract, they will only have to pay for the closing costs incurred in the B transaction. If you specify that your sales price to them is to be the NET to you, they will be responsible to pay closing costs for both transactions (they must know there will be two transactions and that they will be paying closings costs for both – don’t surprise them with that!).
  • Other closing methods include buying the house in a land trust and then assigning the beneficial interest to the trust over to the new buyer. The same can be done by buying in a new LLC you set up for that property. You then sell your membership in the LLC to the new buyer. Both of these strategies involve you selling your interest in an entity versus selling the property. Woah, Nellie! These techniques are beyond the scope of this article though and have ins and outs that you need to know about. Just wanted to let you know they exist.
  • Brand new REO listings tend to have a lot of competition. You might want to target listings that have been on the market a little while (typically around 45-50 days). You will start to notice trends on whether price changes occur and you want to hit them with your offer right before this price change. Once the price change happens, you could be facing more competition.


Wholesaling bank-owned houses can be done, but it’s a little more difficult and complicated than wholesaling houses from motivated sellers (private sellers). You can now see why I recommend buying from private homeowners. That and there is just so much darn competition right now with listed properties.

Go forth and wholesale.

-Danny Johnson

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Comments (33)

  • Jake

    “So if the house will sell for $200,000 and it needs $20,000 in repairs, they will likely be willing to pay $140,000 (200,000 * 70% – 20,000).”

    Should that number be 120k?

    • Danny Johnson

      I’ve always wondered when I would make a mathematical mistake. Thanks for catching it and letting me know.

      • Jake

        Thanks to you for putting this info online. Math errors and typos are part of the blogging game, but I wanted to make sure I was looking at this info correctly. Thanks again

  • Kerri

    I do want to point out one important point, because I ran into this recently. This does not apply to government owned properties. Fannie Mae and HUD are some of the big ones that I ran into that someone tried to wholesale. Great post!

    • Danny Johnson

      Thanks, Kerri.

      You can wholesale a Fannie Mae property but you can’t sell it for more than 120% of what you bought it for within 90 days. This restriction is stated in their addenda and is why I mentioned making sure you read all of these documents thoroughly.

      I’m not aware of any issues with HUDs as long as you got it under contract after the owner-occupant period.

  • Sandy

    How do you find houses that are FSBOs?

    • Danny Johnson

      I’m assuming you are referring to finding motivated sellers that want to sell their house.

      Here are 57 ways:

      These mostly pertain to finding people with these situations and mailing them a letter or post card that informs them that you buy houses.

      This is an incredible way to get great deals.

  • Steven Blanton

    Great info there Danny! Man, I got a new job a year and a half ago, bout the time you initially stopped your blog in 2011, and invested my time and energy into the new job and also got comfortable with it so I didn’t pursue REI. I’ve read back through most of your emails since 2012 and man I’m am pumped to get things going again! Thanks for providing all of the easy to understand information, support, and motivation we need to accomplish our dreams!

    • Danny Johnson

      Thanks for letting me know all of that work inspired you. Always good to hear.

      Super glad you are going to make a go of it again. Keep in touch and let me know how it is going and if I can help with anything.

  • Anthon Z

    Hey Danny,
    Excellent post! I understand banks will not allow you to assign REO’s. I also heard that when dealing with REO’s sometimes banks (depending on state,like NY) will not let you double close & use the end buyers money for the transaction. I believe they refer to it as a wet closing vs dry closing? can you explain the difference? In regard to my question if you can’t use end buyers money to double close can you use transactional funding with proof of funds letter, as a cash offer to the bank? do banks look at transactional funding as buying w/cash or just a loan?
    Thanks in advance for all the great info you posted and answering my questions!

    • Danny Johnson

      Hey, Anthon.

      You can submit the offer as a cash offer with the proof of funds from the transactional lender. If they don’t follow through you might lose your earnest money. If you make the offer as a financed offer, your offer will be contingent on you getting the financing (obviously not as strong as the cash offer).

      You will want to make sure you have a true serious buyer that is going to be buying from you and I’m sure almost all, if not all, transactional lenders will want to know that you do have a serious and able buyer ready. I’ve never used transactional funding, so I may not be the best person to answer this.

      The terms wet and dry usually refer to whether the money is available and transferred when the closing takes place. So a dry A transaction is where the seller signs and you as the buyer signs but the money is not available just yet until you sign as seller and the end buyer signs as buyer and his/her funds (from the B transaction) are used to close the A transaction.

  • Anthony

    Thanks for the explanation, very informative!

    • Danny Johnson

      No problem.

  • marc

    With the example you stated above, after finding what the investor would pay for that property do i start placing my offers in that ball park using the $110k as my MAO??

    • Danny Johnson

      Yes, you are correct.

  • Marc

    Awesome. Now Danny, my only issue is determining the ARV in order to get my MAO. I get the comps from the agent and I have the market value of that property im looking to flip and I look at the solds in the area (from 3-6months ago) and I average about 5-6 comps (which are apple to apple) and I get a figure. Now I’ve been told to check zillow and eppraisal as well and use the number that is close to the result I got from my average solds.

    What is your system to effectively find the ARV that will help you find your MAO in order to have effective numbers that will make the deal work?

  • Erin

    Wondering if you have any thoughts/insight into purchasing cash only / online auction properties…is this too big a risk?

    • Danny Johnson

      That is a big risk unless you can buy at a price that makes sense (something that would cover replacing EVERYTHING in the house if you can’t get inside to verify what repairs it needs).

  • Joe

    Hey Danny,
    Great Post, love all the info on this site. I have one issue that is stopping me from wholesaling REOs is that you need an agent to let you in the property every time you want to go in. If your bringing multiple cash buyers through the property, it draws attention from the agent that your not the serious buyer. How do i get around this?

    • Danny Johnson

      Hey Joe.

      It’s best if you can just get the lockbox code. This is one of the reasons I prefer working with private sellers.

  • Anthony

    Hey Joe & Danny,
    That is a good question, all you need to do is ask the realtor for the code. Just tell realtor your contractor, inspector, wife etc would/needs to get in the house. It can be a casual call something like this: “Hey Ronnie Realtor I’m at 123 main st showing my contractor (who ever) the house & he wants to take a look-see for some measurements. Ronnie I know your real busy guy, is there a chance you can give me the code so you don’t have to come all the way out here? ” This usually works 8-10 times and they’ll hold you responsible for any issues after you’ve been given the code. The last thing they say is make sure the place is locked up.
    hope this helps!

    • Danny Johnson

      Thanks, Anthony. That is a great tactic.

  • Aaron Mason

    Hey Great Article!! I’m just getting started in real estate and I have a question. I just got a property under contract about a week ago from Wellsfargo. Its a 5 bedroom, 1 bath town home that last sold in 2007 for $120,000. The purchase price I got it for was $13,000. I put a down payment of $1000 on it.. it because the other comps in the area are $95K – $120k…I was looking to rehab this property because it has an after repair value of $150,000..Its my first deal, and my mentor who was going help me finance the deal, left to Germany. So hard money lenders wont give me a loan to purchase or repair because I have so little of my own money invested into it..and Banks wont let me take out a personal loan because my credit score isn’t high enough to take out a personal loan from the bank… I wanted to know what would be the best option for me to wholesale it? or if that’s even an option?

    • Danny Johnson


      Sounds like a heck of a deal. Not sure how much in repairs it needs, but even if it needs a lot, you should have a lot of room. Unless the $13k was a typo.

      Surprised that you can’t get a hold of your mentor on a deal like this. The way I see it is you can either wholesale it or find another investor willing to put up the money and experience and coach you through and split the profits.

  • Lauren

    Hey Danny,

    Great post! I started following you right before the holidays and have already learned a lot. Looking at risk factors, with this scenario, is there any way that you could potentially get “stuck” with the house if the buyer backs out and your name is on all the contracts? Just wondering…

    • Danny Johnson


      Nobody can force you to go through with the closing. The contracts usually state the most they can do is keep your earnest money. This is why we get non-refundable earnest money from end buyers. If they don’t close, we keep their money.

  • Alex

    Hello Danny,

    I really appreciate the information you provided in this blog. The only question I have is, if you use a pre-approval letter as proof of funds, will I still be able to sell the house to a cash buyer while under contract?

    I’d appreciate your response.

    Thank you,

    Percy Yarleque

    • Danny Johnson


      You should be able to switch it to be cash before closing. It’s when you go from cash to a loan that title companies and banks don’t like.


  • Dennis Pendergrass

    My concern is will the realtor give me the key to enter the property without them being present so I can show my end-buyer or does the realtor have to prestent at all time?

    • Danny Johnson

      You’ll need to setup showings if you don’t have the lockbox code or supra (have to be agent) to get into the house.

  • Asia greene

    Great article, I have a owner who has not yet gone into Florclosure. She has walked away, its been about a year since she paid her mortage. She doesn’t care to get a Realator. Just wants as much as she can get to walk away. Which way should we go. Banked own

    • Danny Johnson

      If bank owns it you’ll need to contact the bank to see if you can make an offer to them or find out which Realtor they are going to list it with. You say it’s bank owned though but also mention it hasn’t yet gone into foreclosure. If it hasn’t gone into foreclosure, she likely still owns it and can sell it to you.

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