For those still making sense of the terms being thrown around the real estate and mortgage industry, REO stands for Real Estate Owned. These are properties that have been foreclosed on and taken over by banks. Since the housing crash several years ago banks have been piling up more and more of these properties on their books. Between the many other properties that these banks have financed on which the mortgages are not being re-payed and the many loan modifications that have been given banks and mortgage lenders across the US are under more pressure than ever to get these non performing liabilities off of their books. Banks and mortgage lenders desperately need to recoup the capital invested in these REOs and get their cash back. Worse than just sitting idle and not bringing in the cash flow they expected, banks have a lot to lose by keeping REOs in terms of carrying costs and potential vandalism if they stay empty.
This means that REOs now offer some of the biggest discounts for home buyers and investors. No doubt you have heard that California, Florida and Nevada have been some of the states hit hardest by the foreclosure crisis. Though let’s take a look at the top states offering huge discounts on REOs as reported by RealtyTrac, the nation’s largest compiler of foreclosure data.
Average savings from buying REO properties:
1. Kentucky - 48%
2. Tennessee - 47%
3. Ohio - 45%
4. District of Columbia - 45%
5. Illinois - 42%
6. New Jersey - 41%
7. Michigan - 41%
8. Georgia - 40%
9. Wisconsin - 40%
10. Pennsylvania - 38%
48% sounds great, but wait till you look at the actual dollar figures! On a $300,000 home in Kentucky this translates to a savings of $148,000 over buying a similar home that is not a foreclosure, getting it for just $156,000. However there are many more important benefits to be had from buying a REO property than just price. Purchasing an REO property from a bank also means that you can be assured you will receive clean title to the property and won’t be taken in by a scam. There may be many attractive looking real estate deals out there, but if you don’t get clear title to the home you could find your investment is lost as well as the home.
Now is the ideal time to buy REOs. Homes are now more affordable than they have ever been before. Not just because of the low prices but also due to the incredibly low interest rates currently available on mortgage loans. Additionally, with all of the talk in the news about a possible nationwide foreclosure halt banks and investors in mortgage securities are under incredible pressure to get the REOs they have sold as they could be facing long periods of even less income.
REOs are now easier to buy than ever before. It used to be very difficult and only the realm of extremely connected and savvy real estate investors. Now anyone can take advantage of the many benefits of buying REOs. It is true that you can contact banks and mortgage lenders yourself in an effort to acquire REOs in some cases, while other banks only sell their REOs through third parties. However the process is tightly controlled by the banks and it is definitely in your best interest to have a real estate professional on your side in order to make sure you get the best deal. If you have been thinking about getting back into real estate investing or are just looking for a great deal on a home for yourself and your family to live in you will find that buying an REO now could be the best investment opportunity of your lifetime.