Saturday, August 14, 2010

Top 5 reasons to buy REOs

Today, I'd like to talk to you about the top 5 reasons to buy REOs, as opposed to foreclosures or properties directly from homeowners.  First, let me explain to you what an REO is.  REO means Real Estate Owned and it is real estate that is owned by banks.  It's generally been taken from the previous homeowner in foreclosure.

1.  REO properties are free and clear.  They have no other liens against them.  For instance all the taxes have been paid, any mechanics liens or 2nd or 3rd mortgages have been paid.  If you are working on a property that is in the foreclosure process, there could still be many other liens on it.  There certainly could be 2nd mortgages, mechanics liens, tax liens or any number of other problems that you will have to deal with as an investor.  Savvy investors know to always check the title BEFORE you buy a property.  The same could be said for properties owned by individuals -- unless you have a title company who can check title for you, you could be in a world of hurt when surprises, like other owners for example, come up.  When the property is already owned by the bank, there are no other owners -- it's just the bank.
2.  Banks are motivated sellers.  Banks are not allowed to own properties and the more they own, the more trouble they are in.  They need to get rid of these properties and get rid of them at reasonable prices.  Though if you are only buying one at a time, you might disagree with that as banks are also trying to recover as much of the property value as they can.  However, if you can buy several REOs from a bank, you can get them for much less.  Also, the bank has already spent a fortune on the foreclosure and they now have carrying costs for any property on their books.  The more properties they have, the more trouble they get in with regulators, and with their shareholders.  It's very good for banks to get rid of REO properties. 
3.  You don't have to go through a long process like you do if you are trying to get a bank to agree to a short sale.  You don't have to get all of a seller's personal information and constantly submit fresh paperwork to banks or work with seemingly unmotivated loss mitigation representatives.  While short sales can be very lucrative, and I believe in helping homeowners to avoid foreclosure so it is worth it to do short sales, if you can buy a property that a bank already owns, it's a simpler process.
4.  Properties are ready to be yours right away.  REOs are generally vacant.  Any tenant has been evicted or the homeowner has already moved out.  Unless you have a squatter, you don't have to deal with evicting a tenant or with angry homeowners destroying a house before you are able to buy it.  What you see is what you get -- you will already know if the house is destroyed when you make your offer.
5.  You get clean title with an REO property.  The bank is the owner as soon as the foreclosure process is completed.  There is no question about who owns the house and you won't magically have 5 other heirs show up on title making it impossible to purchase the property -- which is something that happened to a fellow investor and friend of mine.

I hope you learned something from this and look forward to speaking with you soon.

Christy Mellott <- go here to get a free report on investing in the Orlando Market (yes -- in fixed-up REOs) and 2 free tickets to a Real Deal Commercial Investing training and bus tour that normally sells for $997