Buying bank owned properties
There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject. Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know “the secret formula”. The fact is that there are no secrets, and to make money does require effort.

What is an REO?
REO stands for “Real Estate Owned”. These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of all that, you’ll receive the property 100% “as is”. That could include existing liens and even current occupants that need to be evicted. A REO, by contrast, is a much “cleaner” and attractive transaction. The REO property did not find a buyer before being foreclosed and the bank now owns it. The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be aware that REO’s may be exempt from normal disclosure requirements.

Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money. This is more often than not true, but not always. You have to be very careful about buying an REO if your intent is to make money off of it. While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The bargains with money making potential exist, and many people do very well buying foreclosures. But there are also many REO’s that are not good buys and not likely to turn a profit. Now, im not trying to make anyone hesitant, just cautious. These buys are RED HOT right now, but as anyone can see with a lil insight; Short term investments are very risky right now, and there in lies potential risk. If you plan on holding these REO properties for a while, your risk drops considerably.

Now from the other side of the bartop; what about if you want to buy an REO property as your residence, or as a long term property *rental or secondary residence* These are a hit. As stated before, REO properties are RED HOT right now, some entering escrow in as little as a week! How is it that they are getting into escrow that fast? They are priced aggresively! The lenders want these off the books, so if you are looking to pick up for long term, get in there and make your offer quickly. If you wait a week to think it over, chances are you will have other offers to compete with, Especially in the outlying areas (Surprise, Queen Creek, El Mirage, Maricopa, Buckeye, etc.)

Ready to make an offer?
REO properties, like many other distressed sales in phoenix have their good and bad sides. A very desireable attribute about REO properties is that the time frame is considerably shorter than a short sale. Where as a short sale could take weeks, even months to get a response from the lender; REO properties are already on the books with the bank. There is no need to assess their losses as the lender has already suffered them, so it's like a normal transaction in the sense that replies to an offer are usually within the contract acceptance period. REO properties are not desireable for the bank cause they are not in business to own property. They are in business to provide financing. A good example is to think about a fish in the ocean. If fish stop swimming, they will drown thus they must keep on moving to stay alive*; the same theory with banks and their stance on REO properties. . . They need to get their money back into circulation to avoid drowning. The downside is these are lender owned properties after foreclosure, and some inhabitants of REO properties will rough up the house before giving it up. So in recap, yes the majority of REO properties are a fantastic deal, the lenders are willing to negotiate and the time frame of acceptance is very convenient. The caveat is some REO properties are in terrible condition and would warrant a costly investment to bring them up to speed. Distressed sales seem to be the "hot ticket" in the market right now, and REO properties seem to be the most hassle free to deal with. They are great to work with, and most of them will be willing to counter and negotiate, but if it's priced VERY well you need to jump on it FAST!

If you have any questions, PLEASE! let me know, I would love to answer them for you. Thank you

*Fish will not technically drown when they stay still as they are equipped with gills. The gills extract life-sustaining oxygen from the hydrogen in the water molecules, in order to regulate the amount of oxygen intake and thus they DO breathe oxygen. It's argued that if the water current is strong enough, they could stay still and the water will wash through not needing movement. It was a loose reference, so please don't hammer my inbox saying how the fish analogy was a fallacy, thank you!*

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