The REO Stage

This level comes about after the property has been foreclosed, and it has been repossessed by the lender. The term “REO” corresponds “real estate owned.” It is as well typically called “OREO” (other real estate owned). Generally, there are a lot of of these properties accessible on the market, and, apparently, they might look like bargains. But a closer look reveals some real roadblocks to making a profit:

Barrier 1: Most are sold through real estate brokers. This means they are sold at full market price, so there is little incentive for you to leverage one because there is no actual profit in it.

Barrier 2: There are numerous rules you've to follow. Many lender-owned properties are HUD (Department of Housing and Urban Development) or DVA (Department of Veterans Affairs) homes. This means you will need to follow a exact set of rules, rules that are enforced by the federal government. Plus, on other non-HUD and non-VA properties, you will have to follow the rules arranged by the lender. Briefly, you could be facing a lot of hassles, troubles that you will not face in the pre-foreclosure market.

Barrier 3: you will need verifiable proof of funds. As in the foreclosure stage, no one wants amateurs without any money slowing down the sale process, so you’ll need to have funds visible to pay the deposit and closing costs. You will likewise need to prove that you have been pre-approved for a loan to finance the purchase.

Barrier 4: You do not have the chance to do an inspection of important home systems. Many REO properties are empty, and all-important systems-electrical, heating/cooling, plumbing, natural gas, water, etc.-are turned off. This means you can not inspect these systems. Since they can be exceedingly expensive to repair, you definitely do not want to invest in a property without knowing their condition.

Barrier 5: REO sales are final! All these sales are “as-is,” so if there are problems with the property, you are stuck with them. Troubles can range from environmental concerns (mold, asbestos, lead-based paint, etc.) to hidden structural damage. They can all be costly to correct, and, legally, you have no chance to look for compensation from the vendor.

From the above reality, you can see why I feel the pre-foreclosure stage is the best area to target. It offers the greatest profit potential, the fewest troubles, and the smallest amount of risk.

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