This Issue: Laughing All the Way to the Bank

REOs Offer Nice Profits for Investors at the Expense of Banks

You can finally turn the tables on your bank. They’ll be at your mercy when you start buying REO’s, or ‘Real Estate Owned’ properties.

How many times have you felt at the mercy of your bank? Remember when they paid you 3% on a CD, yet charged you 7% for a mortgage? Remember those exorbitant overdraft fees, the annoying telephone menus, or the long lines at the teller?

Well, don’t worry. REO’s can help.

An REO is a foreclosed property that has been repossessed by the bank. REO stands for “Real Estate Owned,” which is how banks refer to them on their books. Banks must get rid of these properties, because in their current condition, they are non-performing assets. Banks are not in the real estate business, they’re in the lending business, and regulators will penalize a bank if it has too many REO’s on its books.

In addition to penalties from regulators, banks want to sell REO’s quickly for three reasons:

1. A vacant property can be a liability as it is often a target for vagrants, children, and “house squatters.”
2. They don't want to tie up their money in the capital reserves they are required to set aside for a foreclosed property.
3. The management headache of Real Estate Owned properties is something they are not prepared to deal with.

How Does a Bank Acquire REO’s?
As you know, a home is foreclosed on when the owner of the home does not make the scheduled payments. Subsequently, the bank will arrange for and carry out a public auction--usually at the county courthouse. But sometimes, the owner owes more to the lender than the market value of the property itself. This is often a barrier to selling the property at the auction. When no one bids on the property--or no one bids high enough--title reverts back to the bank.

The property then becomes an REO, a liability the bank is eager to dispose of in a hurry. This is where you can benefit in real estate investing.

Loan Types Make a Difference
You may be surprised to learn that the type of loan used to purchase the home can make a big difference. It is best to purchase REO’s that had a conventional loan, as these will likely yield much better deals than those that used FHA and VA loans. This is because the federal government backs FHA and VA loans, and if the government so desires, it can actually buy them back. On the other hand, homes that had conventional loans are often purchased for just a fraction of their value.

REO’s Can Be Great Investments
Statistics say that banks tend to sell Real Estate Owned properties for around 30% of their original value. They almost always lose money on a deal, but they tend to lose more the longer the property stays in its inventory. You must always do your due diligence on any property you purchase, but purchasing an REO (or many REO’s) is a great strategy to consider--especially in our current real estate market. Won’t it be great to finally turn a profit at the bank’s expense?

Related Training:
Real Estate Investing
Real Estate Coaching
Foreclosure Deal Source

Instead, Go Straight to the Bank for Real Estate Owned Properties

Try real estate owned properties as a great alternative to other foreclosure investing methods. You’ll get the best deal, have less competition and may avoid many of the headaches of normal foreclosure properties.

You don't need another article hyping the foreclosure market. You already know this is an exceptional time to purchase foreclosures. But remember, there’s more than one way to buy a foreclosure:

1. Many investors purchase them as pre-foreclosures. The pre-foreclosure stage is anytime between when the owner starts missing their mortgage payments and when the gavel comes down at the foreclosure auction. There’s lots of money to be made in pre-foreclosures, but there can be lots of headaches too. Competition for pre-foreclosures can be fierce, with homeowners in default getting mail, telephone calls, and visitors.
2. Another way to purchase them is at a foreclosure auction. Unless you are a VERY experienced investor, DO NOT purchase property at a foreclosure auction. The excitement and competition of the foreclosure auction will almost always result in you paying too much for a house. In addition, foreclosures sold at the auction are sold “as is,” meaning they come with whatever liens and title encumbrances they currently have. That means you better do some serious research on any property you plan to bid on at the auction--or you may be sorry.
3. The third way is to purchase an REO, or ‘Real Estate Owned’ property.

Advantages of REO’s
Real estate owned properties have several advantages over traditional foreclosure investing. The first is that you are able to buy at your convenience with no auction deadline. Another advantage is that you have the option of inspecting a property thoroughly before you actually close on the deal. By doing a thorough inspection, you’ll discover any potential rehab problems.

Here are some other benefits of REO’s:

• Bank-owned properties are usually sold at below-market prices--with great terms like low down payments and low interest rates.
• You have less competition.
• REOs are usually clear of any liens against the property.
• You can sometimes negotiate with the bank to have them pay for all or some of the closing costs.
• Bank-owned properties are usually vacant, saving you time, money and the emotional toll involved in the eviction process.

So here’s what to do. Contact the bank and ask for the REO Department or the manager of assets. Most banks today list their REO’s with real estate agents. Ask for the agent’s name and contact information. Some community banks may work directly with you, without going through an agent. However, most banks will require that you contact the agent and have them show you the property. Put in a written offer right away. Let them know you’re a real estate investor--that way they’ll know you aren’t going to pay retail price for the property.

And remember: an agent who is selling one REO will usually have more. Banks tend to use the same agents over and over to liquidate their REO’s. Establish a good relationship with that particular agent, and they’ll likely call you when a new property is available--before they list it or call anyone else.

All foreclosures represent potentially good deals. And if foreclosure investing interests you, make sure to use REO investing as one of your strategies. Its advantages are too numerous to overlook.

Related Training:
Real Estate Investing
Real Estate Coaching
Foreclosure Deal Source