What is REO?
An REO is real estate owned by the bank, and many investors consider an REO property to be money just waiting to happen. Naturally, the bank does not want to keep the REO any longer than possible, and this makes it a great opportunity for an investor.
So, is this a foreclosure?
Not necessarily, it is possible that the bank accepted the property back in lieu of foreclosure. Often times the property owner and the bank both benefit by avoiding the lengthy foreclosure process. This also means that investors benefit when they find a deal on REO property, because many investors only check for foreclosures.
Advantages of REO vs. Foreclosed Property
When you are thinking of buying an REO you have to distinct advantages that a buyer does not have with a foreclosed property. The first is that you are able to buy on your schedule, as you do not have an auction date to work with and around. You can make an offer of the home any time; you don’t have to wait for bidding to begin. Another big advantage of an REO compared to a foreclosed property is that you can inspect it before you buy. Being able to inspect the property before you buy will let you know how big of a project you will be dealing with.
Property Condition
Banks always want to sell a property in “as is” condition. They will allow you to get inspections (at your expense), but they may not agree to do any repairs.
Why the bank will sell an REO cheap
Basically, a bank is not set up to deal with real estate. Sure, they give loans to people, but really, they are not equipped to buy and sell real estate. Because banks are not accustomed to dealing with real estate, it often takes them awhile to get the ball rolling so that they can repair the property, and get an agent to sell the property. What this means is that while the bank attempts to get their business together they are losing money hand over fist and the federal government often penalizes them for each and every REO that they acquire. Because the bank is loosing so much money on each REO, they are willing to sell it fast and cheap. Sure, they end up losing money on the deal, but they end up losing less if they sell cheap now than they would if they kept the property for another six months while they try to pull everything together so that they can sell the property. Disclaimer: The properties listed here have already been reduced to sell. Most REO’s sell between 94% – 98% of list price.
Generally REOs are a great investment as long as you know what you are getting into. The bank simply wants to get rid of these homes, and if you find the right property and are ready to make the serious investment, it can be a great way to get off and running in the real estate business.
