REO properties are foreclosure properties which have been returned to the bank. Real estate owned properties can include single or multi-family dwellings, commercial buildings, farms and vacant land.
Before REO properties can be given back to the lender, an attempt to sell them through a foreclosure auction must first take place. Oftentimes, more money is owned on the loan than the property is worth. It is not uncommon for these distressed properties to have creditor and tax liens attached to them.
When foreclosures are returned to the bank, lenders clear the mortgage note and negotiate with creditors to reduce or remove attached liens. In some instances, banks will make necessary repairs and prepare the property for sale.
A common misconception is REO properties are sold for pennies on the dollar. This is typically not the case. However, when properties require substantial repairs the banks will sell them “as is.” If you are a handyman and possess the ability to make the repairs on your own, “as is” properties can potentially save you a substantial amount of money.
Many banks publish REO properties for sale directly on their website. In most instances, a Loss Mitigator is assigned to the property. Their name and contact information is usually published along with a description of the property for sale.
The first step to purchasing real estate owned property is to contact the loss mitigator and schedule a viewing appointment. Should you decide to make an offer on REO property, you will work directly with the assigned bank loss mitigator. Keep in mind this individual can make or break your deal, so do everything you can to develop a good relationship with them.
When making an offer on REO properties through the loss mitigation department, be prepared for a lengthy process. It is rare for the lender to accept your first offer. Realize real estate owned properties were once foreclosure properties with no equity and an inflated mortgage. More was owed on the property than it is worth, which is the primary reason it didn’t sell at auction. The bank is in business to make money, so plan ahead and prepare a counter-offer.
A lesser known, but more profitable way to invest in REO properties is to purchase them from a private real estate investor who specializes in buying bank portfolios. By purchasing real estate owned properties in bulk, investors are able to buy properties at wholesale prices.
It is not uncommon to purchase REO properties from private investors for 30-percent under market value. Even if you have to invest 10- to 15-percent of the purchase price for repairs and renovations, you will still have considerable equity in the property.
Buying REO property from a private investor not only saves you money, it can help you avoid the counter-offer process and expedite the transaction. Once the investor purchases the REO property from the bank, it is no longer bank owned and you do not have to work with the loss mitigation department.
In the past, buying real estate owned properties was a tightly-held secret of serious real estate investors. Due to today’s market slump and home prices prohibitively expensive in many areas across the United States, many first-time home buyers are investigating REO properties.
If you are currently looking for a great deal on a house or wanting to get started in real estate investing, REO properties might be your best bet. Seek out private investors who specialize in bank owned properties and you could save a bundle of cash by investing in distressed properties.
