When applying for a loan, real estate investors need to give lenders a variety of documents. One of those important documents is known in the industry as an "SREO." Read on to learn more about what an SREO is, why it's important in the world of real estate investing, and how to create one of your own.
What is a schedule of real estate owned (SREO)?
In the real estate industry, a schedule of real estate owned (SREO) is a document that lists all properties in which an investor has an ownership interest. Also known as an "REO schedule," lenders often request that investors submit this document along with other financial paperwork as part of the underwriting process.
Put simply, an SREO makes it easy for lenders to get a sense of an investor's portfolio because it provides all the relevant information about the properties they own at a glance. Along with showing the composition of the investor's portfolio, this document also provides important information about the amount of equity and debt the investor has in each property.
Why is an SREO an important document for investors?
In truth, most investors need to have an SREO. However, this document becomes especially important if you're interested in commercial real estate since commercial loans do not show up on your credit report. This document is often what may make all the difference in whether you ultimately are approved for another loan.
Much of the loan approval process has to do with the underwriter evaluating whether you're a lending risk. Part of making that determination is looking at your current debt-to-income ratio and deciding whether you can handle taking on more debt in the form of another real estate loan.
Since your schedule of real estate owned provides information about all your current liabilities, lenders will likely use that document to calculate your ratios. Without it, they wouldn't have the same opportunity to familiarize themselves with your current liabilities. As a result, they might not be able to confidently agree to grant you another loan.
What are the components of an SREO?
Now that you know more about what a schedule of real estate owned is and how having one can be beneficial to you as an investor, how do you create an SREO?
While this may seem like an exhaustive list, particularly given you must provide all this information for each property owned, it really is necessary. Providing lenders with all the information they need is key to achieving a smooth loan approval process.
You'll want to include your personal information so the lender knows your SREO belongs to you. At a minimum, provide your name, address, phone number, and email. However, it's also good to include the date. Particularly if you're working with this letter to finance multiple deals, your REO schedule is likely to change over time, and you'll want to make sure your lender has the most recent version.
You'll want to provide information about each property in which you have an ownership interest. In particular, you'll want to provide the property name, address (including the street address, city, and ZIP code), type of property, number of units, and acquisition date.
Next, provide more specific information about your ownership interest in the property. In this case, you want to specify if you have a specific ownership role. Also, clearly state your percentage of ownership. After all, it's very important for the lender to know if there are other stakeholders involved in each transaction.
From there, clearly lay out all financial information related to your ownership of the property. This is where you put all the information about your loan, including current market value of the property, original loan amount, date of your loan, current balance, interest rate, monthly payment amount, and loan maturity date.
Though it's not explicitly required, you might also consider including lender name and contact information for each loan. That way, if your current lender needs to contact any of them, they have that information easily.
Rental or flip information (if applicable)
Finally, if you're following a buy-and-hold investment strategy, provide information about the current percentage of occupancy for the property as well as your net operating income (NOI). If, on the other hand, you're following a fix-and-flip strategy, provide the disposition date for any properties currently under contract.
What's not included
This document is only supposed to contain information about properties you currently own. You don't want to include any properties you've recently sold. if you have past sales under your belt, include those on your real estate investment resume, which is a different document altogether, meant to give the lender a fuller picture of your work and experience as an investor.
Tips for putting together an SREO as a real estate investor
Finally, we know putting together a new document on your own can sometimes be intimidating, especially when financial information is involved. Here are some tips on how to put together a professional-looking REO schedule that will impress your lender. Read them to make the creation process a little bit easier.
Check if you need to use a specific form
While there are many SREO templates out there, and you can certainly use them for your own record-keeping, sometimes lenders require REO schedules to be put on a specific form. For instance, Fannie Mae and Freddie Mac have their own forms for any loans they buy, as does the Department of Housing and Urban Development (HUD). Requiring all information to be on a specific form ensures they get uniform information from every buyer.
You'll want to check with your lender to verify whether your form does the job. If not, it should just be a simple matter of copying over all your information into the appropriate format.
The more information, the better
Generally, the more information you can give the lender on this form, the better. For example, if you have a loan in default, you'll want to explain the circumstances around that and what you're doing to rectify the situation. You may also want to include a space on your form to hold any additional, relevant notes about each property.
Keep the form updated regularly
Making small updates to your form every once in a while is a lot easier than trying to create a new, accurate form from scratch every time you need to apply for a loan. Try to keep this form updated anytime you buy or sell a new property. Your future self will thank you.
Review it for accuracy
Finally, before you hand any form over to your lender, take the time to review it for accuracy. While your SREO should be up to date, especially if you've committed to keeping it updated, it's never a bad idea to take another look before you hand over the document.
The bottom line
If you work as a real estate investor, you really should have an REO schedule in your files, especially since this document can help you get approved for a loan. Use this as your guide on how to create your SREO. Armed with this knowledge, you should have everything you need to create a document that will grow with your business for the foreseeable future.