What exactly is an REO? The term REO has been discussed in many publications concerning property sales, on the assumption that the reader knows what REO means. Here is a brief explanation of REO, so you, as a prospective investor, can take advantage of the information out there on it. Using your InvestorComps account to access real estate comps will prepare you to make smart financial decisions these regarding properties.

REO or “a real estate owned property, means the bank or lending institution has full ownership of the property. You can think of it as a property that has “defaulted.” However, REO is a bit different from plain foreclosure. Let us look more closely at the process by which a property becomes REO. First, the party making payments on the house misses payments, to the extent that the property becomes foreclosed. The lending entity to which the person was making the payments usually tries to short sell the property, or put it on the block at a foreclosure auction. The bank will most likely be looking to sell the house or apartment for at least the remaining amount of money owed to it by the previous resident. Thus, the asking price has already been reduced, sometimes significantly. However, if a buyer or investor may not be found, then property becomes an REO.

At this point the property’s price has been marked down even more. It may be in horrible condition, but the price is often very low, because the bank often cannot devote a great deal of time and/or resources to improving the property for investment purposes. Basically the bank often just wants to sell the house as quickly as possible. InvestorComps can provide you with important valuation information to assist with determining which property or properties will be profitable. You can then purchase the house, make some repairs, and then sell it on the market for a much, much higher price than the rock-bottom one at which you bought it.

If you are interested in REO properties as investment real estate, here are ways to find some: 1). Talk with a local community bank or credit union and ask if they have any non-performing real estate assets on their books that they would like to sell. 2). If you have significant funds, you may be able to purchase REO’s from an asset manager at a major bank like Wells Fargo in bulk. Banks of this size have entire departments that are specifically dedicated to handle REO properties.

Whatever source you use, buying a REO can provide excellent opportunities or profit if executed diligently. Utilizing your InvestorComps account to do your due diligence will pay off significantly each time.

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