There
is a lot of interest in buying bank owned properties these days. A lot
of information, some good and some bad, is floating around about the
subject. Often the information offered is for sale, with the promise
that you can make a lot of money with little effort once you know the
secret formula. The fact is that there are no secrets, and to make
money does require effort.
What's an REO? California,
REO
stands for Real Estate Owned. These are properties that have gone
through foreclosure and are now owned by the bank or mortgage company.
This is not the same as a property up for foreclosure auction. When
buying a property during a foreclosure sale, you must pay at least the
loan balance plus any interest and other fees accumulated during the
foreclosure process. You must also be prepared to pay with cash in
hand. And on top of all that, youll receive the property 100% as is.
That could include existing liens and even current occupants that need
to be evicted. A REO, by contrast, is a much cleaner and attractive
transaction. The REO property did not find a buyer during foreclosure
auction. The bank now owns it. The bank will see to the removal of
tax liens, evict occupants if needed and generally prepare for the
issuance of a title insurance policy to the buyer at closing. Do be
aware that REOs may be exempt from normal disclosure requirements. In
Is it a bargain?
Its
commonly assumed that any REO must be a bargain and an opportunity for
easy money. This simply isnt true. You have to be very careful about
buying a REO if your intent is to make money off of it. While its true
that the bank is typically anxious to sell it quickly, they are also
strongly motivated to get as much as they can for it. When considering
the value of a REO, you need to look closely at comparable sales in the
neighborhood and be sure to take into account the time and cost of any
repairs or remodeling needed to prepare the house for resale. The
bargains with money making potential exist, and many people do very
well buying foreclosures. But there are also many REOs that are not
good buys and not likely to turn a profit.
Ready to make an offer?
Most
banks have a REO department that you'll work with in buying a REO
property from them. Typically the REO department will use a listing
agent to get their REO properties listed on the local MLS. Before
making your offer, you'll want to contact either the listing agent or
REO department at the bank and find out as much as you can about what
they know about the condition of the property and what their process is
for receiving offers. Since banks almost always sell REO properties as
is, you'll want to be sure and include an inspection contingency in your
offer that gives you time to check for hidden damage and terminate the
offer if you find it. As with making any offer on real estate, you'll
make your offer more attractive if you can include documentation of
your ability to pay, such as a pre-approval letter from a lender.
After you've made your offer, you can expect the bank to make a counter
offer. Then it will be up to you to decide whether to accept their
counter, or offer a counter to the counter offer. Realize, you'll be
dealing with a process that probably involves multiple people at the
bank, and they don't work evenings or weekends. Its not unusual for the
process of offers and counter offers to take days or even weeks.
News Flash!
Foreclosures experienced a 72% rise since the beginning of 2005
RISMEDIA, October 6, 2006—Foreclosures experienced a startling rise this year – up 72% since the beginning of 2005, according to RealtyTrac. The increasing foreclosure rate is unveiling a different breed of real estateee "flipper" looking to turn a profit on investtment property purchased up to 20% below market value.
"In the midst of a slowing real estateee market, rising interest rates and salaries that are not keeping pace with standard of living increases, we have seen a dramatic increase in foreclosures nationwide," said David Nilssen, CEO of Guidant Financial Group. "This is not great news; however it does create opportunities for savvy investors looking to obtain properties at below market value."
Nilssen cautioned that the foreclosure-investing process can be risky. "A great deal of research should be done to ensure that the investment is sound and clear of additional encumbrances that could affect the deal."
Information about foreclosure properties is found in many places including foreclosure Web sites, legitimate third-party foreclosure listings, educational Web sites, private banks, auction houses, and local tax-collection agencies. The number of foreclosure listings increases every day, with the rise forecasted to continue. Foreclosures are non-traditional investment options that can provide profitable rewards when proper research is conducted.
More foreclosures emerge as interest rates climb and the 30% of loans that were originated with adjustable-rate mortgages significantly increase. Those faced with increasing mortgage payments are attempting to liquidate in a market where housing inventory is increasing and the buyer pool is shrinking. The softening market and the rise in interest rates and accompanying payments may spell disaster for many people who could be forced to sell at a loss out of necessity. Yet, as with most cases in investting, one individual's loss is another's gain. As homes become available at up to 20% below market value, large profits can be realized by savvy investors.
As the real estate market shifts gears, a growing number of investors are learning that they can utilize their IRA or 401(k) funds to make these types of investments. Based on IRS law it is perfectly legal to use retirement dollars for these and many other types of investments within an IRA – all that is needed is someone to setup the structure to do so. Once the structure is established, investors can gain checkbook control of their retirement funds and begin making investments that yield higher and more secure returns than those typically yielded within the stock market.
