Buying the The REO
Buying that Real Estate Owned (REO) property represents a real investment opportunity for profit. Sounds easy, doesn’t it? The lender does not really want to hold the property. The previous owner has gone a separate route and there is a very real possibility that this property can be purchased well under market value. Like all marketplaces, the REO marketplace is competitive so develop your strategy and stick to it.
The experienced investor can win in this market, but it takes preparation, discipline, a solid investment plan and a coordinated team effort. Once the bank owns the piece of property, their goal is to turn it over. Usually banks retain the services of a familiar real estate agency to manage the property and handle the sale.
The investor should ask the agent to research the performance of the REO real estate firm. Often these companies price properties according to a specific formula. The investor can learn much about the asking and selling price by knowing the asking and selling prices of other REO’s handled by the listing agency.
The selling agent should contribute to the information gathering process by constructing the property’s history. Research the Trustee’s Deed or Sheriff’s Deed to find the Bank’s purchase price. This information may also be on the tax rolls or listed with the title company. Compare that purchase price with the listing price.
Analyze the loan amounts that secured the property. Somewhere between the original mortgage amount and the foreclosure sale price is the amount the bank is willing to accept.
These figures may have no correlation to the market value. The investor needs to know the fair market value. In many REO purchase situations, there may be multiple offers. The investor must use the fair market value to determine the profit potential.
As we have discussed before, the investor takes an unemotional view of the REO. This is about profit. Use the historical data to build an understanding of the bank’s position and use the fair market value analysis prepared by the real estate agent to set your purchase limit. Present a well-qualified offer and be comfortable with the offering price. Peace of mind has value too.
