Pros and Cons of Purchasing a REO Foreclosure Property

An REO is when the property has gone to foreclosure sale and no one purchased the property so the bank buys it back and it becomes bank owned. The bank then lists the property with a Realtor, and puts it on the market to sell. Sometimes the Bank make minor repairs such as putting in new appliances, changing the carpet and painting to make the property presentable.

Purchasing an REO can be beneficial if you find the right property and have good luck with the lender you are working with. My experience has been that not all REO’s are good investments because right now many banks are holding out to get market value for the properties. So if you do make an offer and it is rejected, keep watching for a couple weeks as the bank continues to reduce the price, and you may get the property at the price you hoped for.

REO Properties Nationwide can be found at Foreclosure Home Investors for FREE. Foreclosure Home Investors has REO listings posted by REO agents.


PROS

1. Reo properties are generally discounted.

2. You can inspect the property as opposed to buying a property at a foreclosure auction.

3. Title insurance is available because the lender has cleaned up all the title issues.

4. Sometimes the bank has remodeled the property already.

5. The banks usually respond within two to three days to your offer, unlike a short sale which can take thirty days to six months to get a response.

CONS

1. The property is sold as is. Most properties today whether they are foreclosure or not are sold as is anyway so this is not really an issue. If you do your due diligence during your contingency period then you know what you are getting involved with. If there are major repairs, the roof needs repair, the air conditioning is not working, that type of thing.

2. The banks are not as negotiable as you think. My experience lately has been that they are looking to get market price so if you come in too low, they won’t even counter your offer.

3. Multiple offer situations are occurring on some discounted REO properties if they are priced way below market. However many buyers are coming in extremely low on offers so don’t be discouraged if the Realtor says there is a multiple offer situation.

4. You have to submit your offer through a Realtor, unlike a short sale where you can deal directly with the owner.

5. Generally you need to close the deal quickly.

Again, REO properties are good values to invest in. It really depends on which bank you are dealing with and how much they want to get the properties off their books. I would encourage you to make offers on REO properties until you find one at a price you are comfortable with.

REO Foreclosure Step by Step

We are investing in REO properties around Southern California and would like to share the process with everyone.

There are 3 phases to a foreclosure process:
1 - Pre-foreclosure: This is usually after the NOD (Notice of Default) has been filed. A typical sale for pre-foreclosure would be a short sale.
2 - Trustee sale: This is the process where the property is auctioned off at the county court house or at the property itself. This process is an auction format so you will need to have financing ready prior to bidding.
3 - REO or Real Estate Owned: This is when the property did not sell at the Trustee sale and the deed has been trasnferred back to the Bank.

For our investments, due to availability and numerous data available, we chose to concentrate on REO properties. We have found REO properties to be a good value compared to short sales due to willingness of the lender to take a loss.

For our research, we are scouring the MLS listing in the target neighborhoods. Once we find a few that are of interest, we have our Agent show us in and to make an offer. Of course there are other ways of finding REO properties, but we have an excellent agent and wanted to utilize his resources.

At this time, we have offers on 2 properties. We will wait to see if they are accepted.

Once an offer is accepted, we will go into detail on our exit strategy for the property. REMEMBER: Always know your exit strategy before going into any investment. This is a crucial step which will save your behind.

During the real estate boom that just passed, real estate investors did not think too highly of exit strategy because there was influx of buyers willing to purchase any property at any price. However, in the current market we are in, exit strategy is crucial and should be a deciding factor on whether you purchase a property or move onto the next one.

REO Homes

I had many people ask me about my Foreclosure list article. That article was geared for investors looking for Pre-Foreclosure lists.

If you are a Real Estate Investor or a buyer looking for a great deat, I have compiled a small list of link I have gathered. These links are to wll known Banks and Financial Institutions that list their REO properties directly.

IndyMac

Countrywide

HSBC

Bank of America

JP Morgan Chase

Wells Fargo

What is an REO you ask? REO stands for Real Estate Owned and usually refers to a property that was foreclosed and is now owned by the bank itself. That means, that at foreclosure, no one either showed up at the auction or did not bid at all.

These properties usually represent a great deal as Investments as usually the 1st Trust Deed forecloses. This means that the bank is in it for only 80% of the original value. Therefore, when they put it up for sale, it is usually around that figure.

BUT, the price they listed it at is NOT the price you have to purchase it at. You can always make a lower offer and see if they get accepted. Depending on which bank owns the properties and what their specific circumstances are, you may walk away with a Great Deal!