What is real estate owned?
Real estate-owned property, or REO for short, is a term used to describe foreclosed property owned by a bank or lending institution. This type of property can be appealing to investors, as it often represents an opportunity to get a good deal on a piece of real estate. The bank wants to cut their losses, as no one is paying for the mortgage on the REO property. However, it’s important to note that REO properties can be risky. You may be competing against other investors, and bidding can bring the price back to market value. That said, if you can get a good deal on an REO property, it could be worth the risk.
The process of buying an REO property is a bit different from buying a traditional property. First, you will need to make sure you’re pre-approved for a mortgage. Next, you’ll submit an offer on the property. If your offer is accepted, you will then go through the standard closing process.
Buying an REO property can be a great way to get into the real estate market. However, it’s important to note that there are some significant differences between buying an REO property and buying a traditional property.
Pros:
- You may have more negotiating power with the bank than if you were dealing directly with a homeowner facing foreclosure.
- The bank may be more willing to negotiate on the price of an REO property than on a traditional property.
- These properties are often priced significantly below market value, making them a great deal for investors.
- Cons:
- There may be fewer REO properties available for sale than traditional properties.
- You may have to compete against other investors for the same property.
- It can be more difficult to get financing for an REO property than for a traditional property.
REO case study
Let’s take a look at an example. Suppose you’re interested in buying a property listed as real estate owned. You find a property you like listed at $200K You offer $180K for the property which, as your research has found, will cover the previous owner’s mortgage. The bank accepts your offer, and the closing process goes smoothly. This would be considered a great deal on an REO property.
The Real Estate Owned market is also becoming a popular way for businesses to liquidate their real estate holdings. For example, in 2016, Sears Holdings announced it was selling off its remaining Real Estate Owned properties. This move comes as the company continues to struggle financially and looks for ways to raise cash.
The bottom line
Real Estate Owned is a term used in the United States to describe property that has been repossessed by a lender. When a borrower defaults on their mortgage, the bank or lending institution may take possession of the property as collateral. REO properties can be a great opportunity for investors, but it is important to be aware of the risks involved. If you are able to get a good deal on an REO property, it could be worth the investment. However, be prepared to compete against other investors for the same property.
