Buying Bank Owned Properties (REO)
Where do most investors turn to when they seek pre-foreclosure opportunities? Sure, they take a look at free foreclosure listings or even sources of foreclosure listings that they pay for. While these sources may lead to productive and profitable deals, they also require extensive marketing and business promotion in order for an investor to tap into these pre-foreclosure opportunities.
What other options do investors have? Well, in today’s market, more and more realtors are marketing properties as short sales in the MLS. While these do represent pre-foreclosure opportunities, I also think that this can be risky for the investor because many real estate agents are pretty new to the foreclosure and short sale world (and thus may just be learning what is a short sale) and you are taking a chance that the agent in charge of the deal actually knows what they are doing. Plus, there is still an emotional aspect of the sale.
A significant, but often overlooked option available to investors concerns bank foreclosures. This umbrella term includes REO properties and HUD homes but it all ties in with the REO process, the phase of foreclosure that follows the auction and where a lender must then sell the foreclosures in their inventory.
Many investors shy away from REO properties or HUD homes because they feel they have less negotiating power or simply lack the capital to make aggressive offers and play along with the rules that REO lenders stipulate. Even though you might favor pre-foreclosure and short sales, these bank owned properties can actually be easier to acquire.
My efforts here are to assure you that there are indeed deals to be found within the realm of REO properties. The offer process in many ways is less complicated, there is little to no emotion on the part of the seller (the REO lender), and deals can be completed much more quickly. If that appeals to you, and capital is your primary limitation, then you need to look into private money lenders and asset lenders who will put together a non-recourse loan for you.
In closing, the entirety of the foreclosure process is ripe with deals that are there for the picking. As rigid as REO properties or HUD homes may seem, the REO process is as much as part of foreclosures as the pre-foreclosure side of the business. Don’t limit your scope, learn all you can and then take the calculated risk. I wish you the very best in success in real estate investing.
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