What Is An REO Property & How Can You Use Them To Your Advantage?

REO stands for real estate owned and it is basically just a term that is used when discussing a foreclosed property where the ownership goes back to the bank or lender. If this happens to be the case, the homeowners are no longer the owners of the property and it has gone through the foreclosure process.

Now, the bank or lender owns the property.

So how does a property become an REO property? First, we start with a loan default. So, the homeowner or the borrower of the property has to default on the loan. This will happen when they fail to make payments over the course of a few months. Terms that reflect this are laid out in every mortgage so that it is clear cut for those that embark on these sort of real estate agreements. Once this happens, the lender then initiates the legal proceedings and the foreclosure process begins on the property. It goes into the pre-foreclosure state, where they have time to make up some back payments.

After all of this is taken care of, a sheriff sale or auction would be set to occur. If there is no highest bidder at the sheriff auction or no one is on the property, the bank ultimately becomes the owner of the property again.

REO properties are attractive to homeowners and real estate investors because in many cases lenders are motivated just to get bad assets or houses off their books. Which means that most of the time they would rather sell the property at a discount and then put that money back to work in a better loan that is actually proven to perform.

This is why you have probably seen discounts sometimes on real estate properties. Many real estate investors are hungry for these properties because they can get a clean title with vacancy and there tends to be a motivated seller and bank lender involved.

How Can You Use REOs To Your Advantage?

REO properties can be very useful investments because we know that people are actively trying to get rid of them, which means that it is almost guaranteed that you could close in on a deal that nets you a much greater amount of money than what you originally put into the process.

REOs are portrayed as liabilities rather than assets in the eyes and minds of lenders. This kind of property is often priced just to retain some or the majority of the lending institution’s investment instead of actually aiming for any profit.

Oncer repair as well as maintenance costs are taken into account, most REO properties can land their investors a quite decent amount of profit.

How Do You Find REO Properties?

• Properties you see that are listed as ‘bank owned’ are REOs, so pick and choose based on listings.
• You can also just go ahead and directly contact lenders and ask them for their lists of owned properties or inquire what they have available at the moment.
• Work with an experienced agent so that you can gather up listings of REO properties.

A Few Tips On Acquiring REOs

• Tip #1: Find and look into who the local REO agents are in your market.

Banks hire real estate agents to sell REOs and in any given market there are only a number of agents that get access to the REO listings. When an agent is given an REO they later list it for sale on the Multiple Listing Service (MLS) which is privately amongst agents. However, after the property is put on the MLS website, other sites like Zillow, Realtor.com, and Redfin publicize this information on their sites. This means that you will then have the ability to dive into sold transactions and active listings and discover who the REO agents are in your area.

• Tip #2: Make your offer regardless of asking price.

You should really try to follow this tip when it comes to any seller and agreement. No one is going to get mad or be offended by your offer, it will just be accepted or it will not. So, you better place your offer if you really want to do some business with Real Estate Owned properties!

• Tip #3: Fine-tune your offer so that it is catered towards the bank and the closing date.

It is important to understand that REOs can cause some serious issues for the bank. It is a non-performing asset on their books and depending on their month-end or year-end report the bank could become increasingly motivated or determined to sell the property. This tells us that hitting the headline spot-on is very high on the bank’s list of priorities. We can use this information to create and pose offers that banks would be more willing to accept or settle for.

Concluding Thoughts Regarding REOs

An REO property can turnout to be a great purchase, but you have to analyze the particular situation or scenario to truly gage whether or not it is the right option for you.

We know that there are attorneys, banks, and lending institutions that work the 9 to 5 life and there are a lot of legalities that they have to meet, so the timing can hinder your ability to pull your transaction off.

It can take a while to hear back from the bank after putting in an offer so if you are looking to take advantage of REOs as you are looking to move, investing in Bank owned properties or REOs is most likely not a good idea.