How To Find REO Properties: A Beginner’s Guide

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If you’re new to real estate investing and thinking of throwing your hat into the “REO property” ring, there may be wondering how to find REO properties (and how to close those deals once you find them).

Though making an REO offer on a property does require patience — and more than a few hoops to jump through — learning how to buy a bank-owned property can be a lucrative part of your real estate investing portfolio (and can help you find undervalued properties, without the marketing expense required when buying a property from a homeowner). For what it’s worth, bulk REO properties can be one of the greatest exit strategies for investors that know what they are doing.

What Is An REO Property

An REO property, or real estate owned property, is a bank-owned home that failed to sell at auction after the owner defaulted on its mortgage. The process of becoming an REO property transpires this way:

  • The homeowner (borrower) fails to make the mortgage payments on the property

  • The lender begins the foreclosure process

  • The lender submits a notice of default

  • The borrower continues to fail to make payments

  • The lender issues a notice of sale

  • The borrower fails to produce the lender requires

  • The property is put up for public auction

  • The house fails to sell at auction

  • The lender takes possession of the property

  • The lender sells the house to traditionally to home buyers or investors


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How to buy an REO property

Discovering Where To Find REO Deals

Understanding how to buy bank-owned properties is one thing, but if you are going to commit, you need to know where to find the deals. Here are three ways to answer the “where to find REO deals” question and put you in a great position to acquire an REO property.

1. Let Your Fingers Do The Walking

The easiest and most traditional method for finding REO properties is to simply search one of the many public-access sources of REO listings. This includes:

  • Public Records: Any time a home goes to foreclosure a notice must be recorded with the County Clerk. As the name suggests, these records are public and available for anyone to view. You’ll want to search for a Notice of Default (NOD) or Notice of Sale. Best of all, this type of search is free.

  • ank REO Listings: Most lenders compile lists of all their available REO properties. The Bank REO Real Estate blog has a resource where they’ve collected many of the bigger ones. Though the search is free, the process is time-consuming, as there are many different listings to go through.

  • Government Foreclosures: Banks and lenders aren’t the only institutions who can foreclose on a property. The government – and more specifically government organizations such as Fannie Mae, U.S. Dept. of Housing (HUD), and the Small Business Administration — can take possession of a property. And each of them has listings of foreclosure property that you can put on your wishlist.

  • Pre-Foreclosure Listing Service: Unlike the sources mentioned above, using a service such as RealtyTrac — which aggregates foreclosure and pre-foreclosure properties in one location — is not a long-term free option. But the initial expense is little when compared to the long-term profit potential these foreclosure properties can bring.

The upside to these types of research-based sources is that most of them free, or in the case of RealtyTrac quite affordable. The downside is that they take valuable time and energy, and they are available to any other investor searching for an REO property (making it difficult to get a jump on the competition).

2. Leverage Your Network

What’s the best way to find out about an REO property before it hits the public lists? Leverage your investor network, of course. (A key advantage when learning how to buy an REO property.)

This would include, but not be limited to:

  • Listing agents

  • Asset managers

  • Title agents

  • Mortgage brokers

  • Contractors

Listing agents and asset managers can be the most helpful, as they generally have a pulse on properties in the early REO process. This does, however, require that you already have an existing real estate network or are currently building one; another reason why it’s never too early to get started building your investor network out.

3. Go Where The Foreclosures Are

The law of supply and demand doesn’t just apply to that 12th-grade economics class you took in high school. It also applies to the process of purchasing an REO property.

That’s because, quite simply, the more supply you have within a given market, the more opportunities you’ll have to acquire an REO property (especially if you’re just starting and it’s your first time making an offer on an REO property).

And while it’s beneficial to invest in a market you know well — and that is near you — sometimes there can be real advantages in “dropping your hook where the fish are.”

From an REO investment perspective, this means targeting specific geographic regions that have high foreclosure rates. And while these numbers can fluctuate, and are prone to change, here are four U.S. regions that, according to RealtyTrac, may offer real REO property potential for a real estate investor.

  • Trenton/Newark: New Jersey is the state with the highest foreclosure rate, and with nearly 10% of all homes vacant, these two metro areas have plenty of inventory to choose from.

  • Baltimore: Charm City offers interesting potential to investors. Maryland has a higher-than-average foreclosure rate, and vacant home rate, yet it’s median household income is $20,000 higher than the national average. Meaning the right REO property might bring in a generous-sized profit.

  • Las Vegas: With a high unemployment rate, 4.9%, and skyrocketing vacant home rate, 14.1%, Nevada is a market with lots of movement. And with Las Vegas topping the foreclosure lists, there’s likely to be plenty of REO property potential for you to consider.

  • Miami/Ft. Lauderdale: Florida may have a lower median income and foreclosure rate than other regions on this list, but with a 19.3% vacant home rate there are plenty of REO properties to look at. (And with its proximity to the beach, Miami could represent a great entree into the REO investing trade.)

A great resource for up-to-date foreclosure information, state-by-state, is RealtyTrac. Be sure to check their listings for the most recent foreclosure information.

How To Buy REO Properties

The process of buying an REO or bank-owned property is similar to the process of buying a traditional home. However, there are a few key differences that you should be aware of before you decide to purchase one of these homes. Here is an outline of how to buy an REO property:

  • Prove that you are a qualified buyer by getting preapproved for a mortgage

  • Find a real estate agent that you can work with who is experienced in the REO home buying process

  • Make an offer. Expect competing offers from other bidders. You will have the opportunity to counter offer

  • Expect to conduct a home appraisal to price the home’s market value

  • Conduct a title search to check for any undisclosed leins on the home

Summary

Buying REO properties as part of a bigger investing strategy requires patience, skill and more than a little bit of determination. That’s because there is only one answer to the “where to find REO deals” conundrum: wherever you can.

Learning how to find REO properties isn’t as simple as sending out a certain amount of direct mail postcards or buying a certain amount of Facebook ads. Though lenders are, by definition, motivated sellers, this does not mean they move quickly to close a deal.

Armed with information, and a supply of investing energy, you can find REO deals before the competition does, which might just give you the patience and skill for your next deal.

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