Silver Penny Mall

Is REO the Silver Lining in the Current
Downturn?

We all want to turn lemons into
lemonade, but what?s the winning recipe
in this decidedly downtrodden economic
environment? Increasingly, savvy
investors are finding ways capitalize on
these historic conditions with REO
property. First, let?s define REO.
Simply put, a Real Estate Owned
investment is property that has returned
to the mortgage company or bank. This
typically occurs after the bank has
unsuccessfully attempted to sell the
property at auction to recover the value
of the loan.

It?s very common that these distressed
properties are not bought, or even bid
on, at auction because they are actually
worth less than the value of the loan.
In fact, being ?under water? by owing
more than the value of the home is why
the original owner couldn?t simply sell
the property and avoid foreclosure.

After the original homeowner misses
mortgage payments and the home is not
sold at auction, it is repossessed by
the bank. This is when the property is
classified as REO. At this point, the
bank will negotiate with vendors and the
IRS to remove liens and pay other items
like homeowner?s association fees. If
the original owner is still living in
the home, the bank also handles
eviction. Basically, they try to package
the property and make it ready to sell.

Many of the REO homes are in less than
pristine condition, with basic
maintenance ignored and in need of many
repairs before it?s ready for the retail
market. The bank, not being in the
business of fixing homes, will want to
sell these assets in ?as is? condition.
This means you could pay a relatively
low amount for a property that can be
fixed and sold for a profit.

REO property offers the prospect of
profits, but you must be diligent. REO
offers both opportunities and challenges
with additional issues including
property preservation, title issues,
code compliance, liability, the need for
repairs before qualifying for financing,
and turning a ?fixer upper? into a home
for the retail market.

Other issues are that banks can be
stubborn and decide to hold on to REO
properties for years instead of lose
money on a deal. Or you might get a REO
house for a real bargain, but see
profits evaporate when repairs and
renovation costs spiral.

One other way to make money from REO
property is to bypass the banks and seek
private investors who buy bank-owned REO
assets in larger portfolios. Since these
private investors negotiate with banks
and buy REO investments in bulk at less
than market value, you can shop around
for the deal that makes the most sense
for you.

Returns on REO properties from private
investors differ, of course. But you
could see around 15 percent ROI (Return
on Investment) at the end of the
project. There seems to be consensus
among industry experts that ?the long
game? of buying, fixing, and holding
property for eight or more years can
provide an enormous return?allowing you
to triple your investment.

Do your research, pick a strategy that
works for you, and turn the lemons of
today?s market into lemonade for your
future.

We all want to turn lemons into lemonade, but what?s the
winning recipe in this decidedly downtrodden economic
environment? Increasingly, savvy investors are finding ways
capitalize on these historic conditions with REO property.
First, let?s define REO. Simply put, a Real Estate Owned
investment is property that has returned to the mortgage
company or bank.

Technorati Tags : property market these investors