With the market flooded with distressed properties, smart investors have been leaning away from the high risks associated with purchasing foreclosures at auction and are moving toward the safer purchase and buying bank owned properties or REO properties. Recent studies are proving this to be the even smarter move when it comes time to get that return on your investment.
Let’s start by talking about what makes an REO safer than buying at foreclosure auction. The biggest advantage of buying a REO property is that you are able to inspect the property thoroughly before making your offer. When you are buying at foreclosure auction, you are allowed only the visual inspection of a walk-through at best. You could purchase at auction never knowing that every pipe in the wall is broken, that there are 5,000 rats or termites living in the attic or that the home’s electrical system will never pass code. There is no denying that these are all good things to know before you start thinking about how much you are going to spend on an investment property.
Of course the advantage to buying at foreclosure auction is often price. Most homes that sell during this stage of foreclosure sell for way below market value and definitely below post-foreclosure value. Unfortunately, most of the time the money saved is needed to get the property up to code or to pay back liens. Which leads us to another advantage of buying REO properties; back liens are generally cleared. Most lenders will clear liens against a property when they take back ownership after a failed foreclosure auction. In some instances, a lender may also pay for a major repair, but this is rare and all REO properties are sold with the As Is clause protecting the seller.
The newest news about REO properties offers a pretty big advantage to REO purchasing too. The Field Asset Services, a property preservation company, tracked over 17,000 properties in 13 states for the first 7 months of 2010 and found that rehabbed REO properties sold faster than those properties that had not been rehabilitated. Close to five months faster! This means that investors, who choose REO properties to rehab and re-sell, are likely to see a quicker turn around on their investment.
HUD and the Neighborhood Stabilization Program have helped to make rehabbing REO properties easier with several grants and loan programs that allow for state and local governments as well as nonprofit companies to purchase REO properties and repair them for resale. FHA has also waved their 90 day flipping rule allowing new investors the opportunity to purchase REO properties with an FHA loan, including the 203K loan with its home improvement allowance, opening even more opportunities to rehab older properties.
The number of foreclosures has slowed, but no stopped. Relatively, the number of REO properties has been on the rise and giving way to great new opportunities for investors to generate solid returns on their investments once again.
SOURCE: Trent Realty
