Buying discounted properties and foreclosures seems like a great idea to many first time home buyers. After all, who doesn’t want to pay less than the market value for a single family home or condo?
There’s a catch, of course. The would-be REO buyer (real estate owned property) needs excellent connections to find, then close on, the best opportunities. Those without experience and necessary skills to analyze a “deal” are often disadvantaged. For instance, a property might look superficially attractive but, unlike traditional property transactions, the buyer doesn’t find out about the basement’s tendency to flood until after he or she closes.
When an REO looks like traditional property
Many banks hold REO properties and many seem to offer similar contracts and terms to those of a traditional property purchase. However, if the bank similarly offers these properties to traditional properties, it’s possible that the buyer isn’t getting the attractive discount that’s possible with “hot properties” or fast-moving REO transactions. It’s also important to remember that the lion’s share of REOs need a lot of work. The buyer can achieve a great return if he or she is accomplished in performing the physical labor or rehabilitation needed to bring the property to street value. If the buyer must hire contract labor, it’s important to calculate the probable return with a sharp pencil!
Smart buyers can use the skills of REO analysis to work for them. If the buyer decides to bid on an REO offered to the open market, it’s possible to use skills learned to acquire the property for less money than the asking price. This is an appropriate buyer strategy in an area where a higher than average number of REO deals exist.