REO stands for real estate owned, and refers to properties owned by lenders. Lenders come to own properties when foreclosures occur, and the home does not sell at auction. REOs are not a good thing for lenders. They are not in the business of owning property, and therefore they are anxious to get them off of their books. These are a good investment opportunity for several reasons.
REOs are easy to find if you know where to look. Although the economy appears to be improving, there are still a high number of foreclosures occuring every week. There are many available from one lender as a general rule, and you can get lists of properties from lenders or real estate listings. If you have good credit and some money to invest, there is no reason why you cannot buy more than one good REO property.
One of the biggest advantages to buying REOs is that you are buying from a lender, so you already have a funding source for your investment. Often lenders will offer discounted rates and special offers in order to get the properties off of their books. There is no need to go looking for a lender, unless you know you can get better rates elsewhere.
Additionally, the selling price of the REOs is generally discounted as well. This is partially due to the fact that the lender wants a fast sale. It is also due to the fact that many REOs are not well maintained, and will need some work before anyone can live in them. However, these low selling prices mean that you can often get a property for a fraction of its true value. This allows you to turn over a huge profit.
There are two main ways you can earn a profit from REOs. REOs make great rental properties. Because your buying price is very low, your mortgage payment could be next to nothing. With a little bit of work done to the property, you can easily make a killing in rent. You can get renters in faster by being able to be competitive in your rental rates and still make your mortage payment as well as a huge profit each month.
REOs are also good properties to flip. Although they may appear run down, most REOs do not really require that much work to get them looking decent and getting them into a liveable condition. If you get a property for a fraction of its value, then spend only a few thousand dollars to fix it up, the profit you can make from the sale of that property at going real estate rates is substantial.
There are few disadvantages to purchasing REOs. The biggest disadvantage is that you may not always be able to see the inside of the property before you buy, so you may not have any idea of how much work really needs to be done before you can do something with the property. Additionally, the very fact that most of these properties need work before anything can be done with them is also a disadvantage.