Why REO’s?Posted on April 3, 2017 by
We all know that REO is an acronym for Real Estate Owned properties. Basically, it is a property that has been foreclosed upon and now belongs to the bank or lender. Foreclosure properties have been front page news across America for some time. I want to discuss REO properties and the best way to profit from these deals. REIAComps is a great way to expose yourself to the true market value of many REO homes in various stages of foreclosure around Atlanta, the state of Georgia and other market areas.
When banks supply foreclosure lists, they also provide the selling prices that they will accept for those properties. Generally, the banks or HUD have the property priced to move, therefore there aren’t a lot of negotiations necessary. Each property investment is done on a bank-by-bank, house-by-house basis.
In the beginning banks and other lenders were being overrun with foreclosure properties and began to search for ways to cut their losses and unload these bank REO’s. Why would they do that? Simple, it costs money to hold onto a property with no payments coming in. The banks and other lenders still have to continue to pay all expenses on each of their REO properties. That’s where a company that specializes in REO investments comes in and gets set up. Their business model is that they acquire bank REO’s well below the current market value (REIAComps helps with valuation), repair them to “move-in” condition and resell them as soon as possible at a profit.
Some tips at making your business a success in the REO arena are:
- They request lists of bank owned residential property from their bank and lender contacts. They want you to buy in bulk so they can quickly reduce the inventory of bank REOs.
- It is important to have a team in various cities or someone that is able to travel to inspect properties. REIAComps can give you valuation information but one should always physically inspect each of the foreclosure homes individually. Create a file for each property, describing its condition and all relevant details regarding repairs.
- Next, the REO companies will submit their offers to the banks for each bank owned residential property that they believe has good resale potential. NOTE: offers will typically be no greater than 50-65% of the calculated current market resale value of the home. (Remember you make your profit when you buy!)
- When the bank has approved the offer, the bank REOs are purchased.
- Work with building or rehab contractors to make any necessary repairs to get the property(s) into “move-in” condition.
- Finally, the properties are listed for sale around the country. The properties are then typically priced under current market value in order to resell the former REO properties quickly.
Be sure to take into account these tips when delving into REO deals and the process that comes along with them. Always use REIA Comps to determine the best acquisition and ARV for every foreclosure deal you look at. Don’t for one moment let someone tell you the value of a deal. Let REIA Comps show you for yourself.