What are REO Properties?
REO stands for Real Estate Owned (by a bank). REO properties are another great opportunity to purchase foreclosures. The REO foreclosure is the last stage in the process after the real estate foreclosure auction ends, when the lender is either the successful high bidder or no other public bids are offered at all. In either case, the bank becomes the legal property owner. The homes foreclosed are considered “non-performing assets” of the bank, which is a fancy way of saying the bank doesn’t want to hold on to the property. Banks are in the business of lending money, not maintaining or managing an inventory of repossessed homes. This means they are motivated to sell all the homes on their REO list.
Many types of bank owned homes may be available at any time. When checking the inventory of REO properties by state, depending on the local area involved, you may choose from custom single family homes, manufactured homes, condos, and townhomes. There is a very good chance an REO foreclosure is available to fit any housing need. From a small 1-bed, 1-bath condo in a city center, to a large suburban home with land, REO bank foreclosures include them all.
There are many other benefits to buying an REO bank foreclosure. Although the pricing may not be as attractive as found in pre foreclosures or a real estate foreclosure auction, motivated banks will offer extraordinary deals on their REO properties. It is not unusual to find an REO foreclosure selling at a price that is thousands, or tens of thousands, dollars lower than regular market prices.
Another benefit is your ability to inspect the home prior to purchase. Preforeclosures and foreclosure auctions often do not allow a thorough inspection period prior to you making an offer. Once a bank owned home is added to the lender’s REO list, it will be vacant. You should have easy access to the home and ample time to gather the information you need to rate its condition, valuation and estimate any rehabilitation or repair costs.
An REO foreclosure also has advantages when it comes to title and liens. Having passed through the auction stage of the foreclosure process, these property foreclosures have had their title cleared by the bank, and legally all additional liens were canceled. These properties are considered free and clear. No title or claim problems should be expected, making your path to purchase very smooth.
Financing advantages can also be found with REOs. Remember, banks make money by lending money with interest. These same banks can offer attractive financing programs on their own REO bank foreclosures. The bank owners know the history, condition and valuation of their properties, and they want to turn these home liabilities back into money producing assets. So, matching an appropriate loan for a buyer makes a lot of sense. You may also find the banks are willing to accept a price much lower, up to 50% less, than the repossessed homes original mortgage amount.
How do you find REO Properties?
Now that you have a better understanding of how to buy foreclosure property, how do you get access to an REO list or search REO properties by state? Ultra Foreclosures makes it quick and easy to search hundreds of thousands of available bank owned listings. Our powerful and customized data collection process consistently gathers and updates the most recent listings from dozens of hard to find sources. Ultra Foreclosures uses our latest data processing technology to properly organize the enormous amount of listing information into our single, easy to use foreclosure listings database.
Searching individually for REO properties can be difficult and awkward. It is possible for home buyers to contact local banks and explore what properties are available for purchase. To do so, you will need to identify the person in charge of the re-sale or asset salvage department at one bank, and then convince them you are a credible buyer. It’s a good idea to have full documentation of your current financial status, including credit report and earnings statements, to show the bank you are worth talking to about buying one of their REO bank foreclosures. Then follow the same process with all the other banks and other lenders involved with financing mortgages in the area where you want to buy a discount home. Then, collect each lender’s REO list and go out and visit all the properties personally. Do your valuation, rehabilitation and inspection work on the homes most attractive to you and then prepare your purchase offers. If this sounds like a lot of work, it is!
That’s why Ultra Foreclosures brings such a great value to our registered users. Our data brings all the available information on bank repossessed homes together for you to review on our website. We’ve done all the hard work for you, and you can see the results with a sample of our free foreclosure listings.
How to profit from REO Properties
Bank owned homes can offer very attractive alternatives for profit. Three viable options include re-selling, renting or occupying your newly acquired real estate. Each option requires careful consideration of your individual financial situation and personal goals. Regardless, once you define your plan, your REO foreclosure can become a wealth building tool for your future.
If you don’t need to rely on the home for your personal residence and you’re not interested in becoming a landlord, the first option to consider is to re-sell. If you’ve done a good job of negotiating a below market price on the home, you already have a built in profit margin. Take your REO foreclosure back to sale at a competitive current market price, and lock in your profit with a quick sale.
If your goal is to generate cash flow, rent out your home. You bought your REO at a discount and negotiated a great mortgage interest rate, so your monthly payments could be well below comparable rental rates on a similar property. Research your local rental market to see how high the current rent rates are. Then price your rent at a level high enough to attract renters, cover your fixed costs (mortgage, taxes, maintenance) and give you a nice extra cash flow left over.
The final alternative for profit is an equity strategy. Live in your REO foreclosure as your primary residence for the long term. Take some of the savings you realized by buying a bank owned property and put it toward your own rehab to improve your lifestyle. Over time as home prices rise and you continue to pay down your mortgage, equity will build. You may be able to tap into this equity for needed cash in the future, or use your equity as your own personal profit once you decide to resell your home.