REO is the latest buzz word in today's real estate market. REO stands for Real Estate Owned, meaning foreclosure properties which are owned by the bank. Before property can be returned to the bank, an attempt to sell it through foreclosure auction must first be made.

Many real estate investors believe REO properties can be purchased significantly under market value. However, this is rarely the case. An exception to this rule is to purchase real estate owned properties through a private investor who specializes in buying bank portfolios consisting of multiple REO houses. We'll discuss this option further in a moment.

It's important to realize foreclosure homes have no equity and an inflated mortgage. In most instances, more money is owned on the mortgage note than the house is worth. When distressed properties are sold through foreclosure auctions, individuals who desire to purchase the property must make a bid which covers the cost of the mortgage note, along with any creditor or tax liens attached and legal fees or court costs.

In today's recessed economy, few investors are willing to purchase a house for more than it is worth. Additionally, foreclosure properties oftentimes require numerous repairs and renovations. In most cases it does not make sense to purchase a property at a price above current market value, let alone pour more funds into repairs. Instead, savvy investors are willing to wait for foreclosure properties to revert to the bank.

When the bank retains possession of foreclosure homes, the mortgage note is eliminated. Banks will negotiate with creditors and the IRS to remove or reduce lines. Banks will also evict individuals who may still be residing in the home, if necessary. Occasionally, they will invest in repairs, clean up the property and give it a touch of curb appeal. In essence, REO properties have a clean title and all the dirty work has been taken of. This leaves a nice tidy package awaiting a new owner.

REO properties can be purchased directly from the bank, through Realtors and private real estate investors. Oftentimes, these properties are listed on websites of individual banks, Realtors and investors. The listings generally include a description of the property, asking price and contact information for the individual handling the property.

When purchasing REO properties from banks, the contact person will be a Loss Mitigator. The job of loss mitigators is to obtain the maximum price for REO properties in their charge. Currently, banks are flooded with REO properties which can make it cumbersome for investors or individuals to purchase these houses. The majority of banks will not even consider accepting offers of less than ninety-five cents on the dollar. In other words, if you are interested in a property with a note balance of $100,000 the minimum offer a bank will consider is $95,000.

Even if you place an opening offer of $95,000, the bank will usually present a counter-offer. They might state they will accept $98,000 for the REO property. You, in turn, submit a second counter-offer. This process could potentially take several weeks to complete or it may fall through completely.

When working with banks to purchase REO properties prepare in advance for an influx of counter-offers. By planning ahead you will have time to create a solid counter-offer. If there are numerous repairs or major renovations required, document the repairs with photos or a video tape and submit along with your proposal. In your offer, request the bank take care of the repairs or adjust the selling price to offset your out-of-pocket expenses. Thorough documentation and professional presentation can help you close the deal.

A more efficient way to acquire REO properties is to purchase them from private real estate investors who specialize in purchasing bank owned property portfolios. These investors buy in bulk at wholesale pricing and can pass their savings along to you.

When real estate investors purchase REO properties from banks, they are no longer real estate owned and the bank is no longer involved in the transaction. Oftentimes, people can purchase REO properties directly from investors under current market value. It's common to purchase distressed properties from private investors for as little as seventy cents on the dollar.

Regardless of whether you purchase REO properties through the bank or a private real estate investor, it's a good idea to work with an individual who has a thorough understanding of this type of real estate transaction. These individuals can guide you through the process and help you locate properties best suited for your needs and budget.

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