REO’s (Real Estate Owned) Investing Explained

It's formed from the third and final stage of the foreclosure process. An REO property is created when no one purchases the house at the auction, forcing the bank to buy the property back itself. Remember the bank didn't want the house back, but the property was the collateral for the money lent to the homeowner. The property now becomes "Real Estate Owned" meaning- it's 100% owned by the bank. REO investment properties can present many profitable opportunities for real estate investors.

Why is investing in REOs a good niche to consider?

1. Below Market Value: One of the prime benefits of buying a REO property is most REO properties are available at below market value. The reason for this is that the bank is liable for the taxes on the property and they generally prefer to sell it to you at below market value and get it off their books.
2. REOs are a nightmare to lenders: Property taxes, city and county assessments, utility bills, and maintenance costs eat into the lender's profit. The threat of vandalism and illegal occupancy requires that lenders board up REO windows and doors. Often times lenders must hire security services to watch over REOs to keep out trespassers. For these reasons, lenders are often eager to sell REOs quickly.
3. No back taxes: Banks have paid everything at closing.
4. Clear Equity Value: You do not have to argue about "correct" amount of equity with the homeowner.
5. Potential for Great ROI (Return on Investment) - Reselling a foreclosure home can provide a great return on your investment. You may not be interested in buying a foreclosure property for yourself, but you still have the option to make a profit by reselling it. After all, this has been the most frequent practice used by many real estate agents to generate income. Moreover, a little renovation work can further add to the value of the property and generate higher returns.

Buying REO's is one of the best ways to generate profit in the real estate market today. However, before you finalize your purchase, make sure you do your due diligence and research the property, so you feel comfortable with the purchase. It's important to research as much as you can about the area, current housing prices, planned developments, proximity to stores, the town, etc. This research can save you many headaches and problems down the road. The research required and other steps to succeed in this niche should be supplied to you by your mentor, trainer and coach.

Topics: Real Estate, Investment, Ownership

Work cited: Tamera Aragon, 2019

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