Bank owned properties are some of the most lucrative investment opportunities for real estate investors. Also known as real estate owned homes (REOs), these are investment properties that have gone through the foreclosure process without attracting a buyer. As a result, they end up being owned by the bank.
The stages of the REO process are as follows:
- Loan default – This happens when the borrower (homeowner) defaults on their mortgage payment for a specified period. After this period (usually 90 days) has elapsed, a Notice of Default will be sent. At times, the homeowner will be offered an extra 90 days to settle the outstanding payments.
- Auction – Also referred to as the ‘Trustee’s Sale’, this is the stage where the home is put up for public auction. The minimum bid is usually equal to the outstanding loan amount, along with any fees incurred and accrued interest. Once the real estate auction is completed and the winning bid confirmed, the property deed is immediately issued to the purchaser.
- Real estate owned – Any home that doesn’t sell in the auction instantly becomes a bank owned property. The bank will then either sell the home on their own or through a real estate agent. This process involves removing the occupants, preparing the home for sale, setting its price, and clearing liens.
Even with a little background information on bank owned homes, they can still be some of the more difficult real estate investments to purchase. That’s why we have put together 10 pro tips to help you out.
10 Pro Tips for Buying Bank Owned Properties
1. Understand the benefits of buying REOs
In order to fully take advantage of what a bank owned home has to offer, you should first and foremost understand what you’re getting (or should be getting) from this real estate deal. Here are the main benefits of investing in bank owned properties:
- REOs are often sold below market value, with other benefits such as low interest rates and low down payments
- Purchasing REO bank owned properties involves less competition and less risk.
- Bank owned properties for sale are usually free of any title liens. Other problems such as HOA liens and delinquent taxes are also already dealt with, thus saving real estate investors lots of money.
- Bank owned properties usually come with an option for home inspection. This way, buyers can ascertain the condition of the REO property before making a bid.
- REOs are usually not occupied since the bank has already evicted the previous owner. This saves the real estate investor the money, emotional energy, and time involved in the eviction process.
- Since there is no homeowner to negotiate with, the negotiation period is usually much shorter.
2. Learn how to find bank owned properties near you
Before learning how to buy bank owned properties for sale, investors should learn how to find them first. And since this is your first bank owned home investment, it may be best to go after properties in your local real estate market. Why go for bank owned properties near me, you may be asking? You can learn more by reading: Are Rental Properties for Sale Near Me Good for Real Estate Investing?
For anyone wondering how to find bank owned properties close to home, here are some of the options:
- Contacting local lenders directly
- REO listing agents
- Bank websites
- Searching your local Multiple Listing Service
3. Use Mashvisor to find and analyze investment properties
Mashvisor is the best real estate investment tool for finding and analyzing REO homes all over the US housing market, whether in Maine, Florida, NJ or NY. In the Mashvisor Property Marketplace, you can find REO multi family homes, condos, single family homes, and apartments. Furthermore, you can use the rental property analysis calculator to analyze any bank owned properties of interest using metrics such as cash on cash return, rental income, and occupancy rate.
4. Work with a real estate agent
Can you negotiate with a bank owned property? Do you have the needed skills? If not, it would be wise to work with a seasoned REO agent. An experienced agent will help you decide how much to offer on a bank owned property, negotiate the best possible price, calculate the cost of renovations, and work within the lender’s timelines.
5. Do your own research
Having an agent doesn’t mean that you should just sit back and do nothing. Do your own due diligence before deciding to buy bank owned properties. Which bank owns the property? How much money is the bank owed? Learn as much as possible before making a commitment.
6. Don’t overlook a home inspection
Since REO homes are usually sold ‘as is’, you need to know what you are purchasing. Before buying REO property, be sure to get an inspection and an appraisal done first. You can use the repairs and renovations needed as leverage during negotiation.
7. Make an offer quickly
Since banks want to get rid of REO homes as soon as possible, the closing process is usually very fast. Some banks even charge additional fees for delayed paperwork. Once you have inspected the home and done an appraisal, make an offer immediately.
8. Have as much cash as possible
Before approaching a broker, make sure your investment property financing is in order. When it comes to bank owned homes, cash is king. A buyer with cash is more likely to be awarded an REO property than a buyer with a bank pre-approval. With cash, you can get the income property even if you are not the highest bidder. Banks want to sell as fast as possible to recover their money. If you don’t have the full amount, a large down payment could also work.
9. Don’t overbid
When making an offer on REO rental property, avoid the temptation of bidding beyond your budget. Make a reasonable bid and relax. If your financial profile is good, the bank might just accept your offer even if you are not the highest bidder.
10. Prepare for a quick closing
How long does it take to buy a bank owned property? Much less time compared to traditional property sales. Once your offer has been accepted, there will be escrow. Banks usually try to shorten the contingency and escrow period. Make sure you have everything in order so you finish the process on time.
While it is possible to get a good deal on an REO home, you will need to put in a lot of work and time. However, don’t get discouraged if your offer gets rejected. You can always find other bank owned homes being sold elsewhere in the US housing market.