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Understanding Reos
f you are getting involved gold mines.
with real estate you may
have heard the term REO Why the Home Wasn’t Bid On
without really knowing what it
refers to and how it could play a There are a variety of reasons
part in your current or future that a piece of property will
investments. REO is actually just become an REO. The mot common
an acronym that stands for real reason is that the property had
estate owned by the bank. REOs very little equity in it. Many
aren’t all that common because investors will not bid on a
the bank doesn’t want them, but property that has less than 30%
they do happen and you can really equity. In fact, statistics show
cash in as a result. that banks end up with most
houses that do not have at least
How a Property Becomes an REO 30% equity. Many homes become REO
when the property was simply in
When a bank forecloses on a home terrible condition. Most
or property owner, it is requires investors or individuals won’t
by law to hold a public invest in a home that is in poor
foreclosure auction. Sometimes, condition because they see it as
because of lack of publicity or too risky. When a home that is in
other reasons the home will not poor condition becomes an REO
get any bidders at the auction, they are often gold mines waiting
and the bank will end up owning for the right investor to come
the property. When the bank ends along. Another reason that homes
up owning the property it is then are not bid on at an auction is
known as real estate owned by the because there are IRS liens
bank, or an REO. An REO isn’t attached to the property. The
something that the bank wants, problem with IRS liens is that
but many investors consider them there is a 120 period after the
purchase of the home that the IRS auction, they will probably
has the right to take the suffer a loss. Banks are actually
property and refund the money penalized for having too many
that you have paid for it, but REOs by the federal government,
not the money you have put into as they have to borrow funds from
the house updating it. For some the government to stay in
investors, this 120 day business. The federal government
redemption period is just too views the REO as a bad loan, and
risky. has a vested interest in making
sure that a bank does not make
Why the Bank Wants To Get Rid Of too many bad loans. The bank will
REO’s also have costs that are
associated with the property such
Banks do not want to own as taxes, insurance, sewer,
property, which is not what they water, and electricity bills, as
are set up for. Basically, an REO well as homeowner association
is the sign of a bad loan that dues. The property must also be
was given by the bank and the REO maintained and winterized, all of
is a liability, not an asset. this costing the bank money.
Every month that a bank owns a
piece of property means they are Another problem for the bank is
losing money. that it is not used to having to
deal with the fixing and selling
One of the biggest reasons that a of property. Banks don’t have
bank does not want an REO is that contractors and such on hand to
their insurer will make them pay do the repairs, so they are at
a full or partial settlement on the mercy of contractors that may
the property. The bank is also charge them too much for the
aware that it doesn’t matter how services due. It also takes time
much they sell the home for at an to make a house marketable, and
all of this time they are paying mines. Because of this, REOs are
the costs to upkeep the home, generally a very attractive
when they aren’t used to doing business deal for these
so. The bank will usually hand investors. The banks are willing
the big task of managing and to do just about anything to get
selling an REO to someone that rid of their owned property,
has another job, a more important which means that businesses or
job, and this will actually end individuals can get the bank to
up stressing out bank personnel make them a really nice deal so
until the home sells. that they can buy the home, do
the necessary repairs, and then
The bank will also pay to hire a sell the home if they choose, and
real estate agent to sell the still be able to make some money
property once it has been for themselves. For those that
repaired. While this may not seem know how to do it right, there is
like a big deal to most people, a lot of money to be made in
it can add up when the bank is REOs.
expected to pay at least 6% of
the sales price to a real estate REOs aren’t hard to find because
agent for every REO! These costs banks want to get rid of them as
really add up over time, so it’s quickly as possible, and
plain to see why the bank simply advertise them to the best of
does not want an REO. their ability. Investors simply
need to inspect the property to
Why Investors Are Attracted to be sure it is something that they
REO’s can repair and still profit from
if they want to. Many homes
Most investors know that homes become REOs because they are not
that need some work done to them in a desirable part of town, so
usually are the biggest gold the investor that is looking into
an REO must be sure that the home of it.
is in a desirable part of town if
they hope to get their money out
About the Author:
For more Information please Visit : Foreclosures and East Bay Real Estate
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