Can You Buy REO Homes For Pennies On The Dollar?
The late-night TV commercials are all too familiar: Buy REO (Real Estate Owned) homes for pennies on the dollar!
But can you?
For sure, real estate investors can benefit from the glut of REO properties now on the market. These properties are foreclosures that go back to the mortgage company when they aren’t sold at auction.
They end up at the bank, waiting for investors like you.
REOs For Sale
These deals offer plenty of potential for savvy real estate investors. Buying REOs is a smart strategy for seasoned investors. With so many homes in foreclosure – an estimated one in five homeowners owe more on their homes than what they’re worth – real estate owned properties are just one way that successful real estate investors can cash in on bargains.
Generally, most foreclosed homes aren’t sold at auction because the bank is owed more than what the property is worth. It goes back to the bank and becomes an REO property.
Now what? The mortgage loan is erased. The bank may handle the eviction, do some repairs and negotiate with the IRS for tax liens. Now, here is where you as an investor come in.
What To Look For In Bank REOs
Not every real estate owned property is a great deal.
· Make sure your offer is comparable to prices of other nearby homes.
· Factor in the costs of renovations.
· Keep your eye on market value and don’t feel pressured to pay more.
You should do the same due diligence on bank-owned properties as you would any property that you buy.
Each bank may have a different process for selling homes, however, they’re all concerned about the bottom line. Banks aren’t in the home business, but they have dedicated departments that do nothing but sell and manage this type of inventory.
Making An Offer
The bank will sell the home “as-is” without any warranty. Before you make an offer, make sure you find out the following details:
· Are there inspection reports you need to see?
· Find out what work, if any, the bank has agreed to perform.
· Find out how long it takes for the bank to accept the offer.
· Find out how your agent must deliver the offer.
Once you make an offer, be prepared for the bank to counter offer. This is normal, and you should plan for this.
Make sure that your offer includes an inspection period that allows you to end the sale if there are damages that you didn’t anticipate. Your offer should be easy to accept and should include a pre-approval letter for your REO home.
