Buying REO property 

REO properties are real estate owned homes that can often be purchased at a lower than normal prices. A home becomes an REO property when it has been taken back by the bank after moving through several stages of the foreclosure process. REO properties have already been put up for sale at an auction and received no quality bids. At this point, the bank becomes responsible for selling the property on the traditional open market. Sometimes an agent handles the sales process instead of the bank. Examples of agents include asset management businesses and clearing businesses that often acquire a bulk load of REO properties from banks.

While the bank or agent desires to attract the highest possible price for an REO property, it is likely to sell it at fair market value or possibly lower. They want to sell these properties to reacquire their original investment including the amount of foreclosure costs and interest, if possible. The result is often a sales price that is below what the bank originally loaned out to the homeowner who defaulted on his mortgage. Buyers of REO properties can purchase them with bank loans instead of with a cashier's check or cash.

There are some risks involved with purchasing a REO property. These homes often have structural issues like poor plumbing, infestations and erosion. Many have been unoccupied for years, so there is likely going to be some work to do. These homes are sold in their current state and the bank isn't on the hook for any problems, regardless of how significant they are. Interested buyers are advised to get a gauge of what these homes will need in terms of repairs and how much these projects will cost. Some REO properties merely require minor improvements like a new coat of paint or a new furnace.

Sometimes banks will even loan a buyer the money required to make necessary structural or cosmetic improvements in addition to the loan for the cost of the property itself. Prospective REO property buyers should also look into the FHA 203K home repair loan. This low interest loan enables buyers to complete repairs and aesthetic updates as opposed to higher interest bank loans that are used for foundation problems and large scale improvements. As long as you can uplift an REO property's value to match those of the neighborhood's homes and remain within your budget constraints, you'll make money in the end.