Simplify and Speed Up the Underwriting Process by Preparing Your Schedule of Real Estate Owned (SREO)

You’re in the driver seat when preparing documents to hand over to lenders and underwriters—these statements should help you put your best foot forward when buying your next multifamily investment property. They can be the extra push or reassurance lenders need for you to secure a great property.

A valuable document to have readily available is a schedule of real estate owned (SREO), also known as an REO schedule. An SREO is a list of properties you currently own in part or in full.  Properties you have sold are not included in this document, however they should be listed in your real estate investor resume.

An SREO, different from a personal financial statement (PFS), summarizes your equity, debt, and cash flow on each property you have ownership in. The purpose is to simplify—and speed up—the underwriting and credit review process, which means you’re one step closer to owning a multifamily investment property and adding to your current SREO.

What sets apart an SREO from other qualifying documents (and their accompanying acronyms)? In this blog, we’ll explain why an SREO matters, what it should include, when you need it, and how often you should update it. You’ll walk away with another feather in your cap and be better prepared to breeze through the underwriting process and on the road to your next exciting multifamily investment property.

What an SREO does for you, and vice versa

When applying for financing on a new investment property, your financial strength and experience matter. The lender’s highest priority is determining if you are a good credit risk. A qualified borrower means a greater chance of viability and success for the property. Simply put, an SREO is just another form of evidence to support your ability to repay the loan.

An SREO is a key part of the underwriting and mortgage credit review process. It shows the lender and underwriter what kind of deals you have done. This is especially important because commercial mortgages do not appear on your credit report.

You can provide a prepared SREO to brokers when sourcing deals to let them know your level of experience and that you’re a serious investor. It can also be used to give confidence to potential investors and business partners.

You lay your cards in front of you when you present your SREO to the lending institution. Take the guess work from the underwriters and do their homework for them. No bluffing needed. The less surprises there are, the better. Your SREO isn’t only important to your lender, but it matters to you because you’re in control of how the qualifying information is presented about your current investment properties.

What Your SREO Should Include

Specific requirements for the content of your SREO can vary depending on what the lender may require. For example, Fannie Mae and Freddie Mac loans, which have shown healthy growth for multifamily returns this year, both have a specific SREO form they require borrowers to use, and the same goes for HUD or FHA loans.

The purpose of a predetermined form is to speed up the underwriting process by making the documentation uniform. If you are going to be a repeat customer of these sources of funding, you should keep your schedule in their approved format to save you time and improve efficiency.

If you are going to build your own SREO, be sure it includes the following information for each of the properties you own or partially own:

1. The property name, address, city, state, and zip code
2. The property type, number of units, your percentage of ownership
3. The acquisition date, purchase price, debt balance, loan maturity, interest rate, current value, equity, monthly cash flow, and lender name

Your trusted mortgage banker will have several blank or fillable spreadsheets they can provide you to use. If not, send an email request to me for an SREO form at [email protected].

An SREO should not include any interest expense or depreciation values. Remember: you want your SREO to work for you and showcase your qualifying assets A clear, concise—but complete—SREO will not only quicken the underwriting process, but it will help you secure the funding you need to grow and diversify your multifamily investment property portfolio.

A Well Prepared SREO Speaks for Itself

The simple answer to “When do I need an SREO?” is ASAP. At the least, you should have it prepared for your next multifamily mortgage application. When finishing the initial call with your mortgage banker, you should be able to send an email that contains your underwriting documents (e.g., your PFS, investor resume, and SREO).

Because this spreadsheet contains loan balances, equity, and cash flow amounts, it should be updated regularly so it can be a useful tool. It’s smart to get in the habit of updating monthly or quarterly to ensure you always have a current version on hand. Don’t think of it as a chore like filing taxes—this is proof of all your efforts in building your portfolio. It is also a great reminder of everything you’ve accomplished!

As a seasoned professional in the business, I can attest to the fact that a prepared investor with their qualifications professionally presented makes an impact. When a mortgage banker waits weeks to receive documentation, they may begin to ask themselves if you are a serious investor. When documents are received ahead of schedule, the level of experience and reliability speaks for itself.

When care is taken to prepare an SREO with care and expertise, lenders are more likely to trust your ability to repay the loan and even improve upon their investment. Being prepared can reap better funding packages that may be available to you to support your multifamily investment goals.