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So you want to start your own REO?


Hello,


Want to first off say that I have RTFF and feel I'm an informed member of CT now.


I have a medium sized REO company and have been doing this for 11 years. When I started, it was a small part of my construction business. As time (and the economy) went bye, it became 80% of my business. I work or have worked with Safeguard, Corelogic, Cyprexx, MCS, FAS. Never got LPS.


Reading these forums has prompted me to write a few things.


Preface:
People generally simplify this business in name by saying REO. REO means an entirely different thing than Property Preservation, or Maintenance. I'm using it as a blanket term for foreclosed property work.


People are caught in the downturn, trying to make ends meet. I get it. Clean out a house, mow a yard. It's so simple. But you can't expect to be hired by a company to do some work and get paid in less than a month and not have any insurance or industry knowledge.


These companies will chew you to pieces if you don't know what you're doing. If you do know what you're doing, they can still chew you to pieces.


If your starting at zero, then you need to be a sub for an REO company and learn the regulations. Realtors and nationals aren't just going to give you business for asking if you have no experience.



First fact of realtors: 90% of them are in the way of the good 10% that actually do business. Realtors that do big business in REO are busy professionals that don't take many chances.


First fact of nationals: This isn't putting an application at Wal-Mart and bs'ing your background. They check every little bit of your application. They do a criminal, credit check, everything. Some of them require you to have a loss of life continuation plan. If you haven't worked for Cyprexx but say you do, then Safeguard won't hire you.


Second fact of nationals: You can make a lot of money but they own you. Me? I work for the nationals and they run my life. I weigh my profit vs. my life happiness and I'm ok with the sacrifices.


If you want to make up to 5k per month (starting out on REO and repairs) and you have some awesome realtors to feed you work, it's possible. If you want to make more, then you need the nationals. No way around it. Realtors fall in and out of favor and their success is your success if your tied to just a few.


Most of the companies you can work for have stuff all over the web. You know if your with Corelogic, you're doing good. You know if you're working for Cyprexx, you wish you were working for Corelogic. Corelogic doesn't have as many problems as Cyprexx but it's still a cluster many times. They all are.


Third fact of nationals: Everything is way more complicated than it needs to be and it has always been this way and always will. All of them have crappy communication.


Like the realtors, if your only client is one national, you will know the pain of losing them someday.


Some people here think this is a part time hobby business and are shocked at real world business problems we have such as collections, deadlines. I run into these same problems recruiting new subs.



This is not a business for part timers. This business is more like a SWAT team than an occasional hunting trip. You have to be ready to go when they say jump. Every time. You can't be remodeling a basement, get the email to do a cleanout, due in 2 days. You have to be committed to it.



This can be the most frustrating business in the world because it seems so simple yet it's extremely complicated. People minimize the difficulties of doing this by stating they are successful handing a few realtor clients.
Requirements:


Experience. Do you know how to put on a window well cover to HUD specs? Or the CO2 detector rules in your state? How to board a HUD window to specs? Many prospective subs laugh and say they can board up a window and yes, they can board it up. But if you want to get paid for it, then you have rules to follow.


You need staying power. Cash flow. You have no business being in business if you can't float 30k minimum. At any given time, I'm floating 150k in receivables per month. I've not paid my mortgage on time yet forked out 20k per week in subcontractor expenses to keep this beast running. It's brutal. I've said a hundred times, I have the most profitable business I could imagine yet I'm so broke sometimes!


Which leads me to collections. You must not shrink from this. You have to be consistently firm, yet sweet at the same time and never let up the pressure of getting paid in a timely manner. Some companies, they only pay when they are asked too. They ignore whatever date you put on the invoice.



If anyone says they have never had a claim, they are full of bs, haven't been in business for more than a year or don't work for a national. You need the insurance for your protection. And the nationals do check if you have it. Gen Lia+E&O for a single state runs about 6k per year. Comm Auto for a single truck runs about 1k per year and some nationals require you to have Unemployment Ins on yourself (the owner) which is another 1500 based on a 40k paycheck. Before you sign up your insurance, it depends a lot on who you work with. It's faster to ask who they accept sometimes rather than just calling a broker. Most REO contractors use a broker from out of town like York Jersey (me).


If your starting out as a 1 or 2 man crew, you need a truck and a trailer to haul trash. There is more money in trash and repairs than anything else. You need very little in tools other than a chainsaw, lawnmower, drills, generator etc.


You do need a laptop, camera (and backup), a mobile broadband connection.


Most operations start out small and do it all themselves. Eventually they realize they are good at either field work or office work but not both. So they hire out one or the other. For a husband/wife team, its husband-field, wife-office. I have 6 office workers that only format and process work orders and invoice. They are paid well but will work all night if it's needed. We never, ever, are late due to our office. We are rarely late due to field work.


Turnaround time. You need to complete everything in 24 hours. Even if the deadline is 72, you need to complete in 24 because things do happen and you will wish you had a cushion. Further, most nationals, if you make a mistake, and you don't correct that mistake within their original deadline, then your docked a percentage such as 10-15%.


Your subs will let you down, forever. This business doesn't attract your model citizens to do this work. Eventually, a sub will fall off the wagon and do something stupid. You need to be prepared for this and have an emergency plan in place.


Speaking of subs, you MUST have each sign a subcontractor agreement, sign a w-9 and write their checks to their business. Eventually, you will have some jackass sub who will get an initial secure and do a complete cleanout instead. They can't emotionally deal with their mistake so they then they will demand to get paid for the bs cleanout. Of course you tell them to kiss off and they will run to the labor board and turn you in asking to be paid as an employee. Ouch.


Keeping sales up. Some nationals run like a computer. You get their jobs 100% based on your compliance score. Some can't spell compliance. These clients, you need to find out who their asset managers are, and call them weekly. I send cookies, movie tickets, plants etc to all of them. Last year we send $300 in cookies to a client and our business didn't change one bit. That's sales. One time we sent a bamboo plant to a certain asset manager, and she changed our business forever with her generosity. Realtors need constant weekly checkins. Like the cash flow, if you don't have the stomach for this, then don't bother trying to join the club and bitch about it here later. I have a 5-person/company call sheet I make every day. I hate these calls but I do them. These are the 5 biggies I don't have. Years past, it was 20 per day and I now work for nearly everyone that I want too and I know who I don't want too.


Where to start?


Be a sub first. Then move on. It's the American way...


The realtor route is good but requires a ton of leg work. Don't ignore it but just saying you need to spend time and find out who is important in this business and go after them.


The national route is much shorter but less successful starting out. Generally speaking, the lower paying nationals like Cyprexx are easier to get than the higher paying ones like Safeguard and Corelogic. Likewise, the lower paying ones are more of a pain in the ass. Cyprexx will take someone in a hard to service area or will take someone with a business experience.


What exactly is a national? A national is someone that has a direct relationship with a major bank like Chase, Wells Fargo. A pseudo-national is someone like me who operates in one state for Safeguard only, then asks Safeguard if you can service another state, and then I call you, stating I'm a national when really you're a sub for a contractor who thinks he is a national. Point being, you make way less. I get a call once a month for calls like this. At this point of my business, I'm not interested in that work, but if I were starting out, it's a good place to start.



However, like the example, this person usually never gets any work. Safeguard said it would listen to a proposal and they might even tell him he will get some work but they rarely do. Most of the nationals give work out by state, not multiple states.


Some contractors do cover entire states and are even bigger than some of the nationals. There is a contractor in Florida that told me he cuts 21,000 yards per week. There are very few contractors like him though.
That's a lot more than I thought I'd write. Good luck.
 

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Excellent first post, Foothills. Very well said and I can tell you put a lot of thought into what you said.:thumbsup:

Welcome to Contractor Talk. I look forward to reading more of your contributions.

Linda
 
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Dan,

Like this business, its a crazy accronym that doesnt make much sense.

REO stands for Real Estate Owned. Helpful? Didnt think so.

It really means, compared to P&P, doing an entire job for a flat rate or for a fee schedule not to exceed a certain dollar amount.

For example, Cyprexx has a joke of an REO program.

They pay $90 for securing. If its a 1 door condo, this is nice. For a 2 door house, still good. But if you have a bunch of hasps/padlocks, multiple doors, then it sucks.

For trash and clean, they pay $400 total which includes 25 cu yds. Most properties, you have what they think is 25 yards. You rarely feel your getting lucky and hauling away less than 25. Then you need to do a through house cleaning of every single piece of the house with action photos with things such as an empty mop bucket, a mop bucket with clean water, a mop bucket with dirty water in it.

In winter, you get $100 for a winterization and if summer, you get $30 for the grass cut, initial or recut.

These types of pricing lends itself to creative bidding. When we did Cyprexx REO, we bid every single job about 2x what it really was (20 yds actual=40 yds bid) so we could make a profit.

Bottom line is that REO is the starting point in this business. Most REO only contractors cant wait to start doing P&P which pays better. P&P is essentially the same work but spread out and more convoluted.
 
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Thanks I have been going back and forth with a company called Regis who I found on craigs list- they were looking for licensed GC's. They called and wanted me to replace a garage door on a home. Go take pics send- them in w/ a price to replace the door.Then go get the door ( purchase with my $ ) do the work-then send in pics of completed work and an invoice.Wait for a check! I asked if there was anyone in Reno that had done this and could vouch for them. They don't release info about employees or contractors.
 
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There is a lot more to the expression REO which carries different ramifications to a contractor (ie risk vs reward).

REO work is normally a property that has already went to a Sheriffs Sale and didn't sell so the bank got the property back...Also known as post redemption. Yes this work pays less but very little risk to the contractor.

P&P work is normally Pre-Sale (before the Sheriffs Sale--foreclosure sale--different names in different States) and this work can carry a ton of liability risk..thus more pay.

We do mostly P&P here and have managed to keep our necks out of the noose but we document, document, document and have tons of exclusions and waivers on any bid or completion.

For a Newbie I would highly state that you need to start in the REO side of the business...lot less risk.
 
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Dan the Builder said:
Thanks I have been going back and forth with a company called Regis who I found on craigs list- they were looking for licensed GC's. They called and wanted me to replace a garage door on a home. Go take pics send- them in w/ a price to replace the door.Then go get the door ( purchase with my $ ) do the work-then send in pics of completed work and an invoice.Wait for a check! I asked if there was anyone in Reno that had done this and could vouch for them. They don't release info about employees or contractors.
Just because a company wants you to carry the cost of labor+materials doesnt mean anything negative. If you were in their shoes, would you send money upfront to contractors? No way. They would eventually get burned.

Carrying the cost is the price of doing business. If you can't swing it, you can't do P&P repair work most likely.

As far as risk of not geting paid. That's an another story. If your gut says danger, then trust it.

For an 2-car overhead garage door, I can have it done for $600. I would charge $1800 for this, $2200 if extensive carpentry is needed. So you weigh making $1200 vs losing $600 against the risk of not getting paid. Exclude liens from the argument because you dont get your money back in a timely manner so they really arent a factor in whether to do it or not.

Do some homework on them and see what you find. I don't turn away potential money very easily.
 
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They have a website & a guy on the phone and an add on craigslist- if they had an office with someone I could meet face to face prior to spending my own $ I would feel better about the whole situation. If you were in my shoes would you go buy a garage door and install it without ever meeting anyone in person ?
 
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Dan the Builder said:
They have a website & a guy on the phone and an add on craigslist- if they had an office with someone I could meet face to face prior to spending my own $ I would feel better about the whole situation. If you were in my shoes would you go buy a garage door and install it without ever meeting anyone in person ?
I would and do about 10-20 repair jobs per week and have never met the people I work for. I'm a p&p contractor, not a remodeling contractor. This forum section, most of us work this way. Even those here that only work for realtors, still rarely meet the person writing the check, the person making the decision.

Still, do your homework, trust your gut, bid for a good profit.
 
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Great Post!! I hope other members of CT find this usefull, I know I did! Thank you for taking your valuable time to put such detail in it.. All of us on here know that time is money! :thumbsup:

I have never gotten into the P&P line of our industry, but like any good businessman, we all need to have open minds for making an income. As my tag line states, yet stolen from an "olde timer" years ago,,,,,,,"Stay Teachable", not too many truer words have been spoken!
 
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Excellent post, FootHills. Most generous of you to share your knowledge and years of experience. I've already been in the business 3 years but plan to print out your post and put it in my work "bible."
 
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Great post Foothills:thumbsup:, I have printed many posts from contractors to add to my list. Lots of good advice and information within this entire Preservation post from all the seasoned contractors :clap:
 
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Nice post...I agree with most of it :)

Even Cyprexx gets desperate enough to negotiate:shifty:

BTW...does foothillsco mean you are in my neck of the woods?
 
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barefootlc said:
Even Cyprexx gets desperate enough to negotiate:shifty:

BTW...does foothillsco mean you are in my neck of the woods?
Denver Co.
 

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Where to start?


Be a sub first. Then move on. It's the American way...
I appreciate the post! A lot of information and it appears to be very honest. So here is my question to all the veterans. I have started as a sub. I've only been doing this work for about two months. It has its pros and cons already. The concern I have is with the pay. The State contractor has agreed to pay me 50% of the bid for doing the work. My labor cost and supplies have to come at my expense out of the 50%. He says he gets 25% for the paperwork aspect of this business, and the National company is getting the other 25%. Is this typical practice, and if so, what should be my future goals to set myself up as a State contractor instead of a Sub?

Thanks in advance!
 

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They have a website & a guy on the phone and an add on craigslist- if they had an office with someone I could meet face to face prior to spending my own $ I would feel better about the whole situation. If you were in my shoes would you go buy a garage door and install it without ever meeting anyone in person ?

The answer for most of us is yes. I do this very thing every day in fact.

Do some research on the company. Keep in mind that like gambling, in this business if you can't afford to loose you can't afford to play.
 

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Thanks so much for the information it has been very interesting and helpful. Just one question everyone talks about bidding and they are not going to do it for less. How can you get them to accept your bids? Some of the work that we have bid on they will say it is too much and redo our bids When I have seen post on here that are much higher than what we have even asked for and also contractors are saying I won't go for a penny less well I can't afford not to go and do the work because it is my lively hood I was told along time ago that some times you had to take the bad to get to the good and that's how I pretty much see it in order to keep hanging in there
 

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When you allow someone to take your written bid an alter it,you no longer have control over your own company. Scratch over your pipe fitter's invoice and see if he doesn't come to your house with some pipe for you.
My question for you is, why do you have to take the bad to get to the good? Why do you have to lose money on anything?
If you would rather be working than be paid what you are worth (if that is the choice)and believe everything will work itself out in the end, then disregard the comments above.
 

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I asked how do you stop them from doing this I didn't say we confirmed and went a head and did the work I would just like my answer questioned
And the bad and good it is no difference then say if you complain about being in this type of industry but yet you still do it so it must not be bad enough and still yet good enough for you to hang around
 
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