Buy a Lot of REO Properties?
When a homeowner defaults on a home loan, the bank often forecloses on the house and it becomes a bank owned or real estate owned property, more commonly known as an REO property. REO properties are often purchased by institutional buyers who own real estate investment trusts or make large scale private purchases. The process of buying a reo property is a complex one, though the process of finding REO property for sale is less so. In this article, we’ll explore the questions of how to find REO properties and how to buy REO properties.
How to Find REO Properties
Though Reo property listings are included in traditional online and newspaper real estate listings, large scale buyers are unlikely to want to scour such sources for properties. Instead, many opt to use software designed specifically for bulk REO buyers. Such software allows potential buyers to view inventory, bid on available properties, and manage their own property portfolios. Once buyers know how to find REO properties, the next step in the process is to focus on the buying process.
How to Buy an REO Property
As soon as a property goes into a distressed status because the homeowner misses a mortgage payment, the beneficiary determines the amount of equity that the property has by ordering an appraisal. After the amount of equity is determined, a homeowner can request a short sale in which the final price of the home is less than the total amount owed to the lender, but the transaction closes before the lender forecloses. In such an event, buyers negotiate with both the owner and the lender. If no short sale is requested, the foreclosure process continues to a foreclosure auction. If the amount of the defaulted loan exceeds the value of the property, it is likely that no bids will be offered. In that event, the property becomes an REO property.
Once the bank owns the property and the mortgage loan no longer exists, the previous homeowners are evicted and, if necessary, the bank may do some repairs. The bank also negotiates with the IRS for removal of tax liens and pays off any homeowner’s association dues. The goal of the bank is to get the best possible price, so they usually present counter offers to prospective buyers who make offers. It is a good plan to counter the counter offer, though it will probably need to be reviewed and approved by several individuals and companies. Buying an REO does allow the buyer to take a little more time in making an offer than purchase of a traditional property would.
Though it is a common misconception that foreclosure properties are always great deals, most bulk REOs have marginal locations with low population rates or poor commercial activity, low or no market demand, and are not qualified for conventional financing. They do usually sell for 40 to 60 percent less than actual market value, meaning that bulk REOs can have high ROIs.
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