REO: A Great Way to Buy Real Estate

Acquiring REO properties is an excellent way to begin expanding your real estate portfolio. Read on to learn some of the basics of the REO world.

REO means "real estate owned by a bank."  When the owner of a property does not pay their mortgage the bank that holds the mortgage sends a notice to the owner. This notice lets the borrower know that the property is delinquent.  If the property remains in delinquent status for a period of time - usually one to three months - then the bank will take possession of the property.

The time period of possession does vary according to which state you live in which is why taking time to research a little state law related to real estate is always a great first step in forming an investment team - even better if you have a real estate attorney in the mix.  The process of the bank taking possession of the property is known as foreclosure.  A foreclosure property is put up for sale in an auction known as a Public Sale.  If the property does not sell or is selling for too low then the bank bids on the property.  This is the point where the bank keeps possession of the property.  

Why Buy An Reo Property?

Banks do not want to hold onto properties long once they have bid to keep the property. The main reason is the associated taxes and liability that go along with it.  If you contract directly with the bank through an REO purchase then the bank has every incentive to work with you as they too are motivated to be relieved of the property.

Be aware however that it is crucial to do your research on an REO transaction to make sure you know what kind of property you are getting into.  Be particularly attentive to any repairs that may need to be made. The fact that the property has reached this point without a traditional sale, short-sale, or auction sale says a little about the property's conditions or location. Make sure you investigate.

When you do your homework and find the right REO property, you can reap major rewards in acquiring a property well under market. It may take a little bit more leg work in the  interim, but at the end of the deal you will have added a profitable venture to your existing portfolio.