FAQ (Real Estate Owned or REO)
What is an REO?
An REO (Real Estate Owned) property has previously been foreclosed on and unsuccessfully sold at a real estate auction, and is presently owned by a bank. When a home is at this stage, it is available to be sold for a large discount because banks are anxious to get rid of the “toxic asset”. Banks are not in the business of managing properties. With Bulk REOs, groups of homes are packaged together and sold in bulk in order for banks to increase their cash flow.
How can Investors profit from purchasing Bulk REOs?
The Cash Buy Approach
If you have the right connections with banks, an option is to become a Tier 1 buyer of Bulk REO’s. These are usually private equity funds, hedge funds, real estate investment trusts, or high net worth investors that play in the game who have the cash to buy packages of 100 plus homes. This is where you get the greatest discounts-when buying directly. Then you can re-sell these homes wholesale to secondary buyers for maximum profit.
Rent or Sell Approach
You can buy Bulk REO’s to rehab them for rent or sale. With this option, after the home has been rehabbed, you can sell the house either with the borrower taking out a conventional mortgage with his/ her bank, or if they are credit challenged, obtaining an FHA Loan. If the borrower cannot qualify for either conventional funding or a FHA Loan, you may want to consider Seller Financing.
