If you have been investing in real estate for a few years, then you almost certainly have encountered the term “REO” properties.
REO stands for “real estate owned,” and it usually is used to refer to properties owned by a bank or lender.
REO properties are usually part of a portfolio of real estate acquired through the foreclosure process, and many real estate investors love buying REO properties either one at a time, via process called “cherry picking,” or in bulk, called “bulk-REO purchasing”.
REO properties represent an attractive investment opportunity for real estate investors because banks and lenders generally do not want to own large portfolios of real estate.
This may not hold true for some private and hard-money lenders, who may aggressively foreclose in order to build up a real estate portfolio, but any lender running a capital fund or who is in the business of lending to turn a profit generally will not want to maintain a large real estate portfolio if they can help it. This means that if you can help that lender recoup the potential loss they incurred as a result of a foreclosure on a property and, in the process, snag that property for a relatively low price, then everyone will ultimately be happy!
However, before you head off to your local bank to review their REO offerings, make sure you understand the pitfalls associated with REO purchases. At PIP Group, we recommend every investor considering making an REO purchase through our platform know 3 things about the property before they buy.
3 Things to Know About any REO Properties Before You Buy
Is the title clean and clear?
REO properties acquired via a tax sale may not have a clean and clear title, depending on where they currently are in the redemption process. That varies by state, so find out where the property is located and how it was acquired before assuming you are buying a property with clean and clear title.
Has all information on the REO properties been verified?
Most REO databases rely on third-party-provided data about REO properties. This means that an REO-purchasing platform may not have verified listed information about a property and will likely not guarantee it. Either make a request for verification directly through the platform or verify everything for yourself before buying an REO since things can change quickly with an REO property’s status and not all third-party sellers will document changes immediately, if at all.
What are the approved land uses for the property?
Lately, we have noticed many real estate “experts” recommending you buy up residential REO properties and convert them to group-living, co-living, or co-working businesses. This is a great business model if your property can be zoned for this use. Some neighborhoods will absolutely never permit it. Make sure that your REO properties purchase will actually fit within your strategy for it before you wire the purchase money.
At Strategic Passive Investments, we host our own REO database filled with properties that have been acquired both via tax deed processes and through bank foreclosure sales. Our investors have access to this platform and all the information it contains so that they can expand their portfolios using REO strategies whenever their personal investing methods permit.