What Is An REO Property?

The real estate owned (REO) class of property is not often referenced as such in the mainstream media, leaving many people to wonder: What is an REO property? If you are looking for a good deal and you are willing to perform the proper research, then the REO class may be for you. Here are the basics of the REO.

What is an REO property?

REO describes a property in the United States that is owned by a lender instead of by a resident. This lender usually refers to a bank; however, many REO properties are also owned by government agencies and government insurance institutions. Some of the institutions that may own properties include the Federal Housing Administration (FHA), the United States Department of Veterans Affairs (VA), and the Department of Housing and Urban Development (HUD).

Properties often end up being REO when they are foreclosed upon and cannot be sold at the end of the process. REOs are usually a huge liability for private lenders and government institutions, as bpty properties with no rental income do nothing but eat resources and degrade. However, private lenders may also bid on properties at auctions and voluntarily take possession of thb as well, for various reasons.

Because private lenders and government institutions consider REO’s a liability for the most part, they are very motivated sellers when they put a property on the public market. Many people refer to the REO market as an industry within an industry because of the specialized buyer that tends to focus on finding, buying, renovating, and flipping these properties.

How can I find an REO?

If you are looking to find an REO to flip or buy for yourself, you can find thb easier than ever using the Internet. Sites like Movoto provide you with clear listings that showcase whether a property is an REO or not. You can see the listing price and the market history of the property, vet the neighborhood and the other relevant factors, and even contact the lender who owns the property to find out about the next auction or private sale.

Each lending institution will handle REOs in a different manner. It can be difficult to find the right person within the institution to make the sale for you, and there may be different requirbents that you need to meet as a buyer. In the case of government institutions, buyers will be scrutinized with more tenacity.

Why should I invest in an REO?

Before most properties can become an REO, all of the liens must be rboved from it. This is a huge advantage to a buyer who may be looking for a turnkey property that is easy to inhabit or to flip. There will usually be no cloud over the title, reducing the need for the buyer to spend hundreds or thousands of dollars tracking down the other owners of the property.

Because the sellers on an REO property are usually very motivated, an experienced negotiator can create a very positive situation for himself as a buyer. REO properties routinely sell for pennies on the dollar, and the terms that a buyer takes on are usually more advantageous to him as well.

Is an REO property a foreclosure property?

The foreclosure market for property and the REO market are separate, although many people consider REO and foreclosure to be synonyms. In the professional world of real estate, they are not synonyms at all. REO properties actually have many advantages over foreclosed properties to a buyer.

The foreclosure market is a market with a different perspective. There are many problbs that come with foreclosed properties that do not come with REO properties. Buyers in the foreclosure market usually specialize in that market, and they come with plenty of cash and other resources that are geared towards that market in particular. The foreclosure market also requires a great deal of extra research into its properties.

What are the advantages of the REO market over the foreclosure market?

REO properties usually sell at prices that are below market. The foreclosure market is much wider, and buyers in that market will often substantially bid up the price on a property that started at below market value. Overall, REO properties have much less competition for thb when compared to properties in the foreclosure market.

Foreclosure properties usually have not been cleared of any liens. If they were there when the resident relinquished control, they are probably still there waiting to be paid. If the initial price is low on a foreclosed property, the buyer has to be wary that the discount is not coming from the liens that are not being mentioned in the initial ads.

You can usually negotiate with the lender and owner of an REO property to move all closing costs over to thb. This can save you anywhere from one to five percent of the total value of the property in cash.

Finally, the actual property in an REO sale has usually already dealt with the problb of the former tenant. If you deal with a foreclosure property, you may need to cultivate a relationship with the local sheriff, because the resident may still be on the property and quite angry at the situation. This will cost you money, time, and headache if you ever run into this situation, resources that far exceed the financial discount that you may have received on the property itself.

2 Point Highlight

Many people refer to the REO market as an industry within an industry because of the specialized buyer that tends to focus on finding, buying, renovating, and flipping these properties.

REO properties routinely sell for pennies on the dollar, and the terms that a buyer takes on are usually more advantageous to him as well.