When it comes to investing in foreclosures and other properties, you can do so at several different stages of the foreclosure process. REO or real estate-owned properties are at the end of the foreclosure process. In these cases, there was no buyer during the auction, and now the bank owns the property.
REO properties offer incredible investment opportunities when you purchase the right one. Still, you need to be aware of a few caveats to ensure you get the most from your investment.
Pro: Discounted Prices
The most obvious benefit of buying REO properties is that you will not have to pay as much. Banks lose money with REO properties, and depending on the degree of loss, they may want to sell it as fast as possible. Anyone familiar with real estate investing knows that if someone wants to sell a property fast, they are typically willing to take less money for it. This means that you can commonly find REO properties for sale at prices well below the market value.
Pro: No Homeowners Involved
Because the bank owns the REO properties, you do not have to worry about negotiating with a homeowner. This is great news, as the bank will not have a personal attachment to the property, making negotiations go more smoothly.
Pro: High Potential Returns
It should go without saying that when you purchase a property for a price that is far below market value, you get an increase in your potential returns. Whether you plan to flip the property or rent it out, your potential returns will be greater than if you bought a similar property at full market value.
Con: Heavy Competition
Like with foreclosures at auction, you should expect heavy competition when trying to buy an REO property. After all, if you notice it is a savvy investment with a high potential return, others will as well.
Pro: No Outstanding Title Liens or Taxes
As a property investor, you are likely aware of the occasional legal complications that arise, such as title liens or taxes that prevent the buyer from fully owning the property, at least without paying a significant sum sometimes. The great thing about buying REO properties is that these outstanding taxes or title liens are not a concern. That is because banks will eliminate liens against REO properties. They also typically take care of outstanding taxes. You should still confirm that your chosen REO property does not have unpaid taxes or title liens, but that is unlikely.
Con: Typically Sold “As Is”
While you do not have to worry about taxes or title liens, you typically have to think about what repairs are necessary to the REO property. Many banks choose to sell them “as is” instead of wasting time on repairs. Depending on your budget or how quickly you want to flip the property, that can be problematic.
Pro: You Can Request an Inspection
The good news is that even though REO properties are frequently sold “as is,” that does not mean that you will be surprised by the needed repairs. You can request having a home inspection done on REO properties, something that is not typically possible in auctions.