5 Big Advantages REO Properties Offer to Real Estate Investors

by | BiggerPockets.com

Just like there are many ways to peel a potato, there are many ways to find a deal. When some of us start out in the real estate investing game, we learn everything the hard way. I had purchased several investment properties before I learned about REOs, and although I didn’t pay full price, I didn’t buy them with as much of a discount as I would have liked to either. I learned about REOs from my experiences as a real estate agent, facilitating sales of bank owned properties to investors, working directly with the bank on the investor’s behalf. It wasn’t until I purchased my first bank owned property (and many others since) that I discovered the many advantages of buying bank REOs.

First and foremost, the term REO (or Real Estate Owned) usually refers to an asset that a bank or lien holder obtains either through a deed in lieu foreclosure process or at a foreclosure sale. If obtained at foreclosure sale, usually that indicates there either weren’t any bidders or there wasn’t a sufficient bid made that satisfied the bank or lien holder. This is where you, the investor, would come in. But why would you want to buy an REO over other types of properties?

5 Big Advantages REO Properties Offer to Real Estate Investors

Advantage #1: You can see what you’re buying.

As opposed to buying directly at a foreclosure sale, one advantage for an investor buying an REO is that you can get inside the property. Although some properties may be winterized or have utilities switched off (which you may be allowed to turn on or off at your own expense), purchasing a bank owned property allows you to visit the home and see the interior, so you can get a better idea of what you’re bidding on. If you know what to look for, this can prevent you from buying a home with alarming internal repairs, or it could even help you find a distressed property for the best price.

buying a house

Advantage #2: You’ll usually get a clear title.

The second advantage is that you’ll usually get a clear title since usually all types of liens are extinguished and the taxes are brought current. So, unlike a property purchased at a sheriff sale, which may be wiped of junior liens, REOs are even free of government and municipal liens, as well as HOA (Home Owner Association) liens, giving the REO buyer more marketable title.

Related: 8 Tips for Bidding on and Buying REOs

Advantage #3: You might receive discounted title insurance.

Another plus is that REO buyers may be able to receive discounted title insurance when purchasing bank owned property, especially if they can use the same title company as the REO seller for the new policy. Usually investors will receive a reissue rate, and this discount for reissuing the title insurance could be anywhere from half price to where the bank offers it up for free.

Advantage #4: You’ll likely receive a vacant/cleaned out property.

REO properties are usually priced for a quick sale, so most REOs are vacant and cleaned out. So again, unlike property purchased at a sheriff sale, you won’t have to deal with any unwanted tenants or furniture, junk, etc. left behind by the previous occupant. This makes for an easier transition for buyers who wish to flip, rent, or repair the property.

Advantage #5: Banks may be likely to make concessions.

Typically, REO properties are sold or listed with an REO broker with “as is” pricing to hopefully sell the property within 30 days. Although this may be rare, the longer the REO property is listed on the market, the more likely the bank or lien holder will be willing to make a concession for the buyer. For example, I’ve seen the bank reimburse for some treatments or repairs for things such as termites. I’ve even seen cases where the bank offered financing and terms for the buyer.

Although there are a variety of ways to find these properties, the most common include using the local MLS, talking to an REO listing agent, or simply driving around looking for boarded up houses (and then finding the owners through public records). Whatever the method, new REO buyers should understand that like any type of real estate, there are certainly times to buy and times not to buy. And sometimes purchasing REOs is a much different process for investors who are used to buying retail or at a foreclosure sale.


More Considerations Before Buying REOs

The first thing to understand is that it’s not the investor’s process; it’s the bank’s process. The bank generally prefers to sell to owner-occupants rather than investors, they prefer to deal in cash, and they usually require a larger down payment from investors. The bank is in it to make the most money possible, and it’s not uncommon for them to be slow to respond to bids in hopes of obtaining a better price. They love multiple offers, but it’s important to remember not to get lost in the bidding war.

Besides considering the advantages listed above, before you run out in search of REOs, follow the universal rule for all types of investments: Always run the numbers.

You only want to purchase or make a bid if it makes financial sense. I’ve personally found that REOs can be great deals when, for instance, they’ve been listed on the MLS for a long time, leaving the bank to be more flexible with their pricing. This is because the bank has most likely been sitting on this house for a while, and they’re just waiting for a reasonable offer.

Related: 6 Crucial Considerations for Buying a Real Estate Deal You WON’T Regret

I’ve also found some of my best REOs in areas where properties were selling left and right, the reason being that not many traditional buyers are paying attention to REOs since there are other deals to be had. And lastly, REOs can be great deals on the higher end of the spectrum, usually because they require such a large amount of cash up front that it scares away all of the little investors from trying.

So, what are you waiting for? Now that you know that there’s many a good deal in REOs out there, it’s time to get up and find them!

We’re republishing this article to help out our newer readers.

If I missed any tips or advantages, feel free to chime in and join the discussion on another great way to obtain property.

Leave a comment, and let’s talk!

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


  1. Excellent advice for those wanting to buy investment properties (or for those looking for bargains). I would like to add that the banks typically employ their own title companies and often they do a less than adequate job in the title and/or lien searches. While most of these issues are protected with the title policies, occasionally some liens such as code enforcement and tax liens are not. So, I always recommend having a good knowledgeable real estate attorney double check the title work.

  2. Douglas Skipworth

    Clearly, you are an expert on REO property. Thanks for sharing so much good info with us, Dave!

    It goes without saying, but since lenders are not in the business to own property, they are highly motivated to sell the REO properties that they take back. To me, that’s why REO’s are great opportunities.

    Personally, we have been able to work directly with a number of lenders to get financing to purchase dozens of REO properties. In fact, we closed two deals like this last month (Dec 2015). It’s truly been the proverbial “win-win.”

    • Dave Van Horn

      Thanks for the comment Douglas! Glad to see you’re enjoying much success from REOs.

      For me, REO’s and notes have been the best ways to get a deal on properties, I’ve never had much luck with the bidding war at the Sheriff Sale.


  3. Dave Van Horn

    Hi Gabe,

    Thanks for the comment!

    I’ve never had that experience, although I don’t doubt it’s possible. It seems like it would be a title claim (which is a hassle, no doubt). And municipal and tax liens can be searched by anyone since they are public record, but anything could be missed. But you’re right, it’s not a bad idea to always do your homework and have another set up experienced eyes take a look.

    This reminds me of another advantage I didn’t mention, if you use your own title company instead of the bank’s there’s almost always a Per Diem penalty for closing late (typically $100/day, regardless of the reason). If you were to use the bank’s title company, regardless of the reason, there are no fees of this sort.


  4. Justin Sumulong

    Insightful article Dave. I’ll be sure to post on the forums for REO listing agent referrals. One of my biggest goals in 2016 is to house-hack and foreclosures are on the top of my search list. Would you happen to know if FHA financing is an option when purchasing REOs?

    • David MacClintock

      @Justin Sumulong, Check out HomePath listings. Depending on your area you can find many duplex/triplex listings. I don’t think I have ever serviced or viewed a quad but supposedly they exist as well. There are some owner occupy rules with FM but house hacking should comply with them.

    • Dave Van Horn

      Hi Justin,

      I believe you can use an FHA 203K loan when buying a house from HUD (Housing and Urban Development) which is very similar to buying REO property.

      I’m not positive you can use FHA financing with other bank owned REO’s, I think it’s possible but I’ve never done it myself. My experience was only purchasing these types of properties as an investor, not an owner occupant.


      • David MacClintock

        I have so many questions for anyone who has used or even gone through the 203k process. It seems like a mythical loan to me. Nobody uses it and no homes are qualified is how I see it. Then again most of the inventory in the REO/HUD market around here is left over from the crash and needs ground up rehab which a FHA 203k will allow for.

        • Dave Van Horn

          Hey David,

          You have a good point. I’ve been in Real Estate 30 years and the amount of FHA 203K loans I’ve seen done I can count on one hand.

          So is it possible? Yes. Is it likely? Probably not. Very little properties fit the mold because the requirements are a little backwards. Sometimes it can be hard to get the required repairs, the After Repair Value, the appraisal, and the qualifications of the buyer all in sync.

          When I bought my first property with a regular FHA loan, the place was borderline 203K. So what I did was split repairs with the seller 50/50 up to $5000. So FHA gave us a long list of repairs (which were still within reason), but I was a contractor so I could do a lot of the stuff myself (or find a friend to do it on the cheap) so we were able to close with a regular FHA loan instead of a 203K. I also incorporated a seller assist which helped a lot as well.

          My recommendation is, if it’s not your first property, find a good deal (REO or not) and use Hard Money or Private Money and refinance it when all is said and done.


  5. Jerry W.

    Dave, excellent post. I have only bought one so far and I made the mistake of thinking the title to a mobile home had been merged into the land when it had not. I have owned it for 10 years I guess I need to get that quiet title case filed.

    • Dave Van Horn


      I know how you feel, I own some crazy notes. I’ve had some that were never even recorded, so I can’t sell the notes, but I still cashflow! It’s funny how things that are usually very important become less important due to certain circumstances.


  6. Duc Ong

    Thanks for the excellent info! I am also looking to go down this road to potential find deals locally in Hawaii. How much longer is the process compared to a typical retail purchase? How much more of a down payment do banks require on these?

    • Dave Van Horn

      Hi Duc,

      Thanks for the kind words!

      It’s about the same as a normal retail purchase (which is typically 60 days) because when you’re buying an REO you’re not foreclosing since the bank has already done that. So it may not be as quick as a cash purchase (which is anywhere from 2 weeks to 30+ days) since they have to clean up the title before the sale is complete.


  7. Derek Johnson

    We purchased our second property as an REO, and got the property at $69,100. It appraised the next year at $108,000 and we refi-cashed out to buy our third property, which was an estate sale. Definitely some deals to be made in REO.

    The only thing I would add is this: don’t assume it’s a deal just because it is an REO property. The deals often come when they’ve been on the market for awhile after several price reductions.

    • Dave Van Horn

      Hi Derek,

      Thanks for the comment. Glad to hear you’ve had much success with REO’s!

      And I completely agree with your other point, just because it’s an REO doesn’t mean it’s a slam dunk. That’s why it’s important to follow REO’s because they drop in value over time the longer they’re on the market.


  8. It’s nice that you said some properties are priced to be sold very quickly. My wife and I have always dreamed of being able to buy some property and build a home on it. We’ll have to see if maybe this might be a good route for us so that we can fulfill that dream.

  9. John Murray

    I have purchased REOs, shorts and conventional MLS properties. The worst deals are the Homepath and Homesteps competition in the retail market. (Fannie and Freddie own the majority or REOs ). VA REOs can be OK as well as true bank owned properties. The VA stuff have all been Chase owned and have done well. The Homepath and Homesteps are not even worth looking at.

  10. Percy N.

    Great article Dave.

    I did fairly well buying, rehabbing, renting and in some cases selling REOs during 2011 – 2016.

    You used to be able to buy these pretty cheap from Fannie, Freddie, HUD and even local portfolio lenders, especially if you have cash and were patient.

    However, at least in our market, the banks started to get greedy (or is it wise?) and raise the prices and not discount them as much. Unfortunately, the prices they are seeking these days is ridiculous – almost at full retail on a property that needs lots of work and may not even qualify for a conventional mortgage.

    Even though my current focus is on 150-300 unit apartment complexes, I still do see some deals pop up from time to time on SFR REO.

    Patience and perseverance will serve you well in life.

    • Dave Van Horn

      Thanks Percy!

      And you’re right, this article was actually written in a different market than today around the end of 2015/beginning of 2016.

      REOs are really just one potential source for deals, its all about being ready in the time and place when that source is available.

  11. Thomas Miller

    Most of my flips have been REO’s. Like others have said, some of the banks have gotten greedy (smart). On the higher priced ones you have to let them set a while. For REO’s that are a great deal, you need cash, and to be “quick on the draw!”. They are a great opportunity for new investors, but are not as common as a few years ago.

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