Investing in REO Properties

Understanding REO Properties

REO property refers to property whose mortgage lender or bank has taken ownership. Lenders can file a foreclosure action if a borrower with residential or commercial properties defaults on their mortgage.

The next step is selling the property at an auction. If the property doesn't sell or the lender is not the highest bidder for it, the property becomes real estate owned. The lender can list it for sale.

Why Should You Consider REO Properties As An Investment?

There are many advantages to investing in real estate. These include the ability to diversify portfolios and generate higher returns. Investors with distressed properties can reap even greater benefits, including increased returns, cost, and value.

However, buying a bank-owned asset is different than purchasing one from the owner. One of the most important distinctions is that the bank will generally take steps in order to clear any tax-liens.

It is possible to make a substantial profit by REO investing. This involves renovating an existing property and then selling it at a higher price than what you paid for it. Flipping properties can prove to be risky especially if they don't sell quickly. But if you do it right, and REO sale can bring in a large return.

REO Property Purchase

An error in the offer can be fatal to the purchase of the bank-owned property. Even though these properties are priced fairly close to market value, or even slightly more, you don’t want the offer to be too low. It's possible to reach an agreement with both the buyers and sellers by working with a professional real estate agent that has experience buying and selling REO property.

Contingencies can usually be negotiated once an agreement is in place. Inspection and Appraisal are two of the most important. Investors will need to schedule an inspection for structural and pest problems. An appraisal from a professional ensures that the property's true value is the same as the amount the bank is willing to lend to you to close the deal. It is beneficial to have the inspections and appraisals done as soon as possible, in case any of them lead to an issue.

Watch Out For These Traps

However, bank-owned properties have their disadvantages. Many REOs are sold by lenders as is. This can slow down turnaround times for extensive repairs. Investors with limited funds may have their returns affected if they spend more to prepare the property for rental or sale.

REO properties could also prove problematic if the title becomes unusable after the sale. To avoid potential problems, investors will need to purchase an additional title insurance policy. This would however increase the cost to own the property.