Jeff Adams, the real estate trainer has been a part time real estate investor and his investing business revolves largely around buying properties directly from banks that have foreclosed on them recently.
When a home is foreclosed upon by a bank, the owner might go away but the home is left behind representing hundreds and thousands of dollars of non-performing asset.
Such an asset creates no cash for the bank. It is just like a drain on the bank because they will have to pay for its maintenance, insurance and property taxes as long as the house is on the books. So it is a better idea always to sell the house and get some money rather than just sit on it.
REO vs. Pre-foreclosures and Short sales
A pre-foreclosure property is one that you buy before the bank converts it into a foreclosure. It occurs when the owner owes more on the home than its actual worth and has no cash to keep up with it. A short sale will pass only on the condition that the bank agrees to take lesser loan than that they have agreed upon.
However, in the case of buying an REO property you deal directly with the bank. There is no non-bank home owner involved in this case. This happens when the bank has tried to sell the home and has failed in its attempts. The original owner exists nowhere and the house is left to depreciate in the books of the bank.
This is when for investors like you, an opportunity knocks the door. You need a house to play your money on and the bank needs the cash so it can lend again. In fact, as Jeff Adams says these banks are clamouring to sell the property even for pennies than the dollars.
Advantages of REO’s
There is no banker who gets attached to any property and creates memories! They just want the deal done which works more in your favor. REO’s do not have any additional costs to worry about. The banks clear everything before they are put on the market keeping all surprises at bay.
There is also no need to keep traversing on the pavement finding prospective buyer so that you can flip the house. Once the bank is aware of your interests and resources it will be only happy to work with you. In some cases, the lender might also be interested in extending financing on good terms to help you flip the property off your hands.
If it’s getting difficult for you to keep it easy with the bank, you can always convince them for a lower price instead of going on short term loans on investment properties just for money.
One disadvantage with REO’s is that you need to find out on your own if your property has some defect in it. Therefore because of this, REO’s are not an investment thing for new comers who have no idea about home improvement or construction.
In spite of all this if the plan goes through well, real estate investment will soon become your cup of tea!
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