What is a Schedule of Real Estate Owned (SREO)?
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Why Is an SREO Important?
An SREO is important for different reasons and to different people.
An SREO is important to lenders because it provides them with the type of information not readily available from a credit report. With the SREO and credit report combined, an underwriter can readily see if the investor’s loan proposition creates an unreasonable level of risk or not.
The SREO helps lenders determine if the investor qualifies for a loan. Only when that is confirmed will the lenders proceed with the underwriting process. In large part, the underwriter will be looking at the SREO to calculate the investor’s debt-to-income ratio, hence the lender’s risk. If the figures show that the investor can handle paying another real estate loan, then will the lender has a stronger case for agreeing to underwrite the loan for the investor.
Put simply, the SREO indicates the investor’s current outstanding real estate debt. Lenders will factor that debt against the investor’s income to come up with the debt-to-income ratio.
An SREO is important to investors because it gives them credibility as knowledgeable partners in an investment opportunity. By preparing the necessary information beforehand and understanding what their debt-to-income ratio means, they can confidently present themselves as ideal investment vehicles for the lenders. For example, if their SREO shows they are due to finish payments for several properties in the next 12 months, then the loan underwriter can see that their cash flow will improve significantly in the near future.
SREO vs. Personal Financial Statement (PFS)
The PFS is a summary of the borrower’s financial assets and liabilities, giving the lender a look at the borrower’s financial position at that moment in time. Among other things, a PFS is a glimpse at the investor’s total net worth. The PFS is useful for any kind of loan, whether it is used for an investment or not.
An SREO, on the other hand, is a document that real estate investors use when applying for a loan to purchase a real estate property. Many, if not all, lenders require both the PFS and the SREO, for the simple fact that while the PFS is a peek into the borrower’s financial situation, the SREO is a similar set of information for the borrower’s current real estate holdings.
What Are the Components of an SREO?
The components of an SREO generally include the investor’s personal information, property information, ownership information, financial information, and rental or flip information where applicable.
Personal information includes the investor’s name, address, contact numbers, and email. For investors who regularly add and remove properties from their SREO, it is important to keep this form updated to ensure that the lenders are looking at the latest version.
Property information must indicate details for every property that an investor has ownership interest. These details include the name of the property, type of property, the number of units, acquisition date, and the full physical address of each property.
Here, the investors must indicate which entity holds the actual deed to the property. Next, the investors must state what percentage of the entity they hold ownership of. Lenders need this information to ascertain if they have to deal with other stakeholders if any.
Required details for financial information include the market value of the property, original loan amount, original loan date, current balance, interest rate, monthly payment amount, and loan maturity date.
The market value must indicate the value of the latest appraisal and the last date of the appraisal.
The loan amount informs lenders how much debt is currently outstanding on each property. Along with the maturity date information, lenders can calculate for portfolio-wide LTV and debt yield, along with the investor’s real equity in the properties.
Investors are advised to have the material information about each loan in hand, including the lender’s name and contact information, as this will be useful if they need to report this information as part of their new loan application.
Rental and/or Fix-And-Flip Information
This part of the SREO paperwork depends on how each property works for the investor. If it is a fix-and-flip property, then the investor has to indicate if/when the property is set to be sold. If it is a buy-and-hold property, then the investor should indicate its occupancy rate and its net operating income (NOI).
Note that for the NOI, the investor has to use recent actual numbers, not projection figures.
Should Investors Include Properties They Have Sold in the SREO?
Investors are not required to include the properties they have sold in their SREO. However, they can prepare a separate list as part of their real estate investment resume. For investors who have accumulated a good sales track record, this additional document should help lenders view their loan applications more positively.
How Do You Prepare an SREO?
In general, investors need to check if their lender has their own SREO forms that applicants are required to use. This is the case with the Department of Housing and Urban Development (HUD), Freddie Mac, and Fannie Mae. The standard SREO forms allow these organizations to easily digitize the information and store it in their servers for easy retrieval and reference in the future.
In most cases, it is useful to download an SREO template that captures all the essential information that the investor needs to submit to lenders. Investors can find many of these SREO templates on the internet. Once they settle on one form, they can simply download it and fill it out. Some software tools, such as Stessa, can also generate SREO forms that can be exported as PDF files and printed.
It is important that investors regularly update their SREO documents. If the forms are valid for a current lender, then they are quicker on the way to securing a new loan. Entries on the forms that they particularly have to keep eye on are properties to be removed as well the NOI numbers, among others.
Examples of Schedule of Real Estate Owned (SREO) Forms
To see what an actual SREO looks like, here are three examples from Wells Fargo, Chase, and the Community West Bank. While they may look different from one another, and some forms have fields or columns that are not present in others, they need only show the essential components as stated above.
Here is a brief description of each SREO template.
1. Wells Fargo SREO Form
The SREO form from Wells Fargo, above, requires all the important information that the bank needs to assess the qualification of the applicant to secure a loan. Each column header is adequately explained, so even a novice applicant would have no hard time filling out the form.
2. Chase SREO Form
The most detailed of the pack here, the SREO form from Chase, consists of 16 columns that ask for such information as property type, number of units or the size of the property in square feet, and 100% current loans balances, among others. Novice real estate investors on the hunt for investment loans will find this form especially instructive in ensuring that their paperwork is in order.
3. Community West Bank SREO Form
The SREO from the Community West Bank is a more straightforward rendition of the form. The “Remarks” section at the bottom compensates for the more abridged version, allowing loan applicants to indicate details that are important to the evaluation of their application.
The Schedule of Real Estate Owned, also known as REO Schedule or SREO, is a document that lists all the properties that an investor owns. Alongside the Personal Financial Statement (PFS) and in some cases, a Real Estate Resume, an SREO is an important document that a real estate investor should be able to produce on-demand.
The SREO gives lenders a sense of the investor’s portfolio, such as how much equity and/or debt they have in a certain property. It also gives credibility to an investor when applying for a loan. Preparing an SREO consists of collecting the relevant information and including the investor’s personal information, but lenders may have downloadable SREO templates that the investor can simply fill out for their convenience.
- >Bank of America. (n.d.) Why your debt-to-income ratio is important. Better Money Habits®. Retrieved from https://bettermoneyhabits.bankofamerica.com/en/credit/what-is-debt-to-income-ratio
- >Mastroeni, T. (2020.) What Is an SREO? Millionacres — The Motley Fool. Retrieved from https://www.fool.com/millionacres/real-estate-investing/reo-foreclosures/what-sreo/