Bank REO are properties seized or foreclosed by the bank from its loan defaulters. These properties usually were not bid successfully in the foreclosure by investors and thus remained with the banks. The reason was that there was almost no equity in the property after paying the asking price, which is not what an investor wants. There was a time when bank REO were hot investments, as the banks were highly motivated perhaps as they needed cash to write off the loan from their books or as the house was a nightmare with extensive repairs. Expert and savvy investors have utilized the opportunity and benefited. A typical example of REO sale is how Steve made a quick buck. Steve met this desperate homeowner who owned a rather run-down home worth $150,000 and owed a bank $145,000! The foreclosure date was to be fixed when Steve intervened and approached the bank with a sales contract and offered a price of $50,000. After negotiations, the price settled at was $95,000. Steve had got a property with $30,000 equity after deducting the cost of repairs. REO sales like these have given many investors the wrong idea that it is a quick way to make a fast buck buy. This is not true. Though there may be equity, it takes extensive research and carefully analyzing skills to make out if there will be room for a profit, plus uncertainty, as you will be dealing with a bank that may not as motivated as you think. The other factors that may be a deterrent are the high non-refundable deposit as well as the lack of a guarantee that the property will be vacant. It is often a time-consuming process. Negotiation may cause further delay, and one cannot be sure of closing the deal, so REO properties and dealing in Bank REO are not for those who just want to make a quick buck easily.

REO Foreclosures
There was a time when dealing in REO was a craze, with lots of investors indeed making a killing, helping debtors get a fresh start and the bank or the creditor being the only one who compromised. This was especially true when the property concerned was in need of a rehab with extensive repairs. Investors would flip bank REO just as easily as other properties. Well, it seems like a thing of the past as banks have become wise and are determined to hold on to the properties, perhaps even undertaking repairs and selling them to genuine homeowners who buy the property to live in. With rules and regulations being introduced making flipping more difficult plus the fact that REO sales cannot be assigned or transferred, investors¡¯ interest plus profit-making potentials have considerably decreased. There are some investors, though, who buy the properties, get the rehab done, and sell the property again after a period of a year or so, getting a good return - not a traditional flip where the property is off the investors¡¯ hands within a few months or so. 

Banks are no longer willing to make a distress sale or a discounted sale; they want what is owed to them. Some bank officers are even misguided, as the property value is after-repair and they may hold on as they probably expect more than the property¡¯s actual value. Another factor that is preventing really interested investors from making the deal are the amateur investors who bid more than the property is worth and thus interested investors lose out on a chance to make the deal. These amateurs sadly realize their mistake and they also may face a foreclosure on account of the negative cash flow. Thus, bank REO foreclosures can work out for an investor only rarely if not hardly at all.

Once in a while, if you give the bank enough time and if no other interested party is around to be a competitor, you may get the property at a discount, especially if the property needs extensive rehab, but the odds of finding such a deal are very little these days.

But there are some other investors who have divined ways to make a profit in REO even today. They are more experienced, with good resources and the acumen required to find and close profitable deals as fast as they are found. If you have the experience, the inside information needed to get a winning bid to close deals, have patience, and have the capacity to do due diligence at short notice, then REO may be your forte after all. But if not, perhaps dealing in REO foreclosures may not be your cup of tea. The possibilities of making a profit in real estate using legally acceptable creative techniques are numerous. Find out what your specialty is and perfect it. Pave your way to a successful career in investing.

 

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