If you start getting involved in real estate investing more than dabbling, chances are a bank will ask you for this document. It’s another one of many you’ll be asked to produce, so it’s good to have it ready and updated every 6 to 12 months.
The SREO is a way for banks and others to tell how much financial liability you have out there. You’ll need to tell the bank every real estate property you own, whether there is a mortgage, and whether that mortgage is recourse or not. We’ll talk about that later. The SREO can be a simple spreadsheet or a more complicated document. Banks often can send you a template, but if you ask for that, it looks like you have never done one before. It’s better to have your own with all the required areas completed. Here are the components of an SREO.
- Contact Information. Put down your primary residence and contact information. Put all the relevant information below down for your primary residence – it likely is a recourse loan (see below). For each of your properties, you’ll need the following. Use a column on a spreadsheet for each:
- Name/Address. The property address or addresses if it is a member of a portfolio. Generally speaking, one column for each LLC is a rule of thumb, but even better is to group those properties on the same mortgage together, if applicable. Call them [XYZ] Portfolio in the name area.
- Ownership Information. Write what entity owns the property and briefly what its structure is. Especially important is your percentage ownership.
- Property Details. Give a brief description of the property, such as multifamily or single family. Then give the number of units and their bedrooms/bathrooms.
- Acquisition Details. Give the date of acquisition and purchase price.
- Mortgage. Write down the name of the lender and the current (as of this month) mortgage principal. Write down the principal and insurance monthly payment. Write down if it is recourse (you are personally responsible for the payments) or non-recourse (the lender’s only remedy if you default is to take control of the property).
- Property Financial Information. In this area, put the scheduled monthly income (including rent, utility billbacks, fees, and other sources of income). Put down the monthly expenses and monthly cash flow remaining after debt service.
Different SREOs will have slightly different items on them, but these are the typical requirements and should get the bank what it needs. Make it look professional and be sure you send it securely. Send me an email if you’d like a copy of my template.
