Bank Owned Homes
Bank owned homes are a well-kept secret amongst savvy real estate investors. Also known as real estate owned or REO, bank owned homes are houses owned by the bank. Before houses are returned to the bank, there must first be an attempt to sell them through foreclosure auctions. If no bids are placed on the property, the lender retains ownership and will then be able to sell their inventory of bank owned homes to investors or individual buyers.
Bank owned homes are generally a better investment than foreclosure homes. When real estate is in the foreclosure process and placed for sale through auctions, they typically have tax or creditor liens attached to them. There is rarely any equity in the properties, so more is owed on the mortgage note than the house is worth.
Once the bank takes ownership of the home they are in a position to reduce or eliminate tax or creditor liens. Depending on the condition and location of the home, banks occasionally invest money for improvements. As opposed to foreclosure homes, bank owned properties have a clean title. Real estate investors can make a bid on these distressed properties directly through the bank and avoid having to deal with the hassles normally associated with foreclosure properties.
Bank owned homes are usually sold close to current market value. In most cases, REO properties only offer a savings of three to five percent. They are generally sold "as-is" and typically require repairs and renovations.
Unfortunately, the vast majority of foreclosure homes require considerable work. It's a well-known fact that when people lose their home to foreclosure they have a tendency to vent their frustrations on the house. It's not uncommon for holes to be punched in drywall, flooring and carpet ripped out and toilets and bathtubs broken. However, by taking time to conduct due diligence, real estate investors can locate distressed properties that only require a minimal amount of work.
When purchasing bank owned homes, be prepared to engage in multiple counter-offers with the lender. Most banks rarely accept the first bid. It is a good idea to compile a second and third counter-offer ahead of time and expedite the process.
Real estate investors and individuals interested in purchasing bank owned homes should consider locating private real estate investors who specialize in purchasing bank portfolios. When investors purchase distressed properties in bulk they are able to purchase them at wholesale pricing and pass their savings along to buyers.
In many instances, bank owned homes can be purchased for as little as seventy cents on the dollar through private real estate investors. This provides buyers with instant equity of up to 30-percent. Even if the bank owned homes require substantial repairs, the buyer can still retain 10- to 15-percent equity while making necessary repairs.
Bank owned homes make a good investment for investors looking for rental properties or homes used for house flipping. Individuals who purchase bank owned homes as their personal residence can save a substantial amount of money.
Take time to thoroughly investigate bank owned homes prior to making an offer. Invest in a professional appraisal and inspection of the property. Conduct research of the area to determine potential growth rates. Obtain comparable housing reports to determine the sales prices of comparable homes in the area and how much other houses have sold for.
The goal to investing in bank owned homes is to purchase them significantly under market value. To accomplish this goal, seek out private real estate investors who specialize in purchasing bank owned home portfolios. Doing so can save you thousands of dollars and a considerable amount of time.