Purchasing a Bank Owned (REO) Home
An REO property is real estate belonging to the bank, and many investors consider an REO home to generally be money just waiting to happen. These properties, although considered foreclosures, have already gone through the home foreclosure process, furthermore, as they were not purchased at auction have subsequently gone back to the lender. This basically means that because their were no successful bids and the home was not purchased at the home auction, the financial institution has taken ownership of the house. Naturally, the bank does not want to keep the REO home any longer than possible, and this makes it a great opportunity for an investor. Not every REO is a good deal, but when you look at REO houses, you'll commonly find there are opportunities to make a profit on the investment.
So, is this a real estate foreclosure?
Yes and no, technically the home went into property foreclosure when the home owner was unable to make the scheduled payments to the lender. As part of the property foreclosure process the home goes to auction to be bid at the Trustees sale, and home went back to the financial institution because there were no bids to secure the home at the auction. Yes, the home was foreclosed on, but it is well past the home foreclosure process and the lender will be anxious to get rid of the property.
Advantages of REO vs Foreclosed Property
When you are thinking about buying an REO house you have to distinct benefits that a buyer does not have with a foreclosed property. The first is that you are able to purchase on your schedule, as you do not have an auction date to work with and around. When buying a bank owned home there' no requirement to wait for a certain time to make an offer, as once the house is assigned to a real estate agent and listed, an offer can be submitted at any time. A disadvantage in buying foreclosed homes before they go to auction is that you may not be able to fully inspect the home, but when you buy an REO you have the ability to perform a complete inspection before your pruchase. Being able to inspect the property before you own will show you how big of a project you will be dealing with.
Best types of REO properties to purchase!
You might not think the type of loan the home was purchased with the first time around matters but it does. You should attempt to purchase an REO home that had a conventional loan the first time around, as you will likely get much better deals with these than you will if you look at FHA and VA loans. Acquiring homes at a fraction of there value is not uncommon on homes that were secured with conventional financing, and at the end of the transaction this could result in a higher profit for the investor.
Which REO homes you should not purchase.
An REO is not always a good deal just because it is belonging to the bank. Always due your due diligence to make sure you know what is wrong or not wrong with the property before purchase. It may be that the home was not sold at auction because there is a material defect with the home and/or it was not priced to meet the market. Did the home just not have enough equity? Were their IRS liens against it? And you always want to make sure you inspect the condition of the home to check for damages. Asking questions will help in making the right decision when acquiring a bank owned home. Make sure you are getting all of your questions answered and do not settle for a question unanswered. Take advantage of your right to inspect the REO property so that you can see with your own eyes what may or may not be wrong, and hire professionals if necessary.
One must also be sure that if they are acquiring an REO house to fix it up and sell it, that the property is located in a desirable part of town. If the property is not located in a part of town that will support the capital investment, of being able to rehab and sell, you may want to reconsider for another house that better meets your goals. Perhaps location is why the house was not bid on at auction. Location, location, location are three factors to consider when acquiring real estate. Do not let the perceived value trick you into believing you are getting a good deal, if ultimately the real estate location will not let you relaize the full value of the investment.
Why the bank will sell an REO home cheap.
Banks are not in the business of selling or managing real estate, they are in the money business. Sure, they give loans to people, but really, they are not equipped to own and sell real estate. When the property does go back to the bank, there are procedures to follow before the property is able to be listed and sold on the open market. What this means is that while the financial institution 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 house that they acquire.
Because the bank is loosing money on each REO, they are willing to sell it fast and cheap. This is why there is a great opportunity to purchase bank owned real estate below current market values. Sure, they end up losing money on the deal, but they end up losing less if they sell cheap now, rather than holding onto the home for another six months while they try to pull everything together so that they can sell the home.
The great thing about working with the bank with an REO home is that you aren't buying site unseen. Generally REO real estate are a great investment as long as you know what you are getting into. For investors and buyers alike searching for a serious investment on the right piece of real estate, finding and purchasing an REO home from the bank can be a great way to get a good deal on these foreclosed homes.
Are you still asking yourself why buy an REO? There are plenty of great reasons such as those above, and a few that haven't been mentioned. One of those is getting a great deal on a second home. Mammoth Lakes is California's premier Ski Resort Destination. Buying a property has never been better, and with prices up to 50% lower than the peak of the market now's a great time to buy. At MammothREOListings.com you will find the best resource for foreclosures in Mammoth Lakes and other Eastern Sierra bank owned homes.
