Buying Reos: Advantages and Disadvantages

An REO stands for real-estate owned. This type of property has not only gone through the foreclosure process but it has also gone to auction and failed to secure a buyer. Once this happens the property is taken back by the bank and considered real estate owned or bank owned property. If you are considering buying REOs in this state it’s good to consider the advantages and disadvantage of this investment strategy before taking the plunge.

One great advantage to buying REOs is that the lender is the primary lien holder that being said all liens and other claims will be wiped at auction. This means that an REOs will always have a clear title. Securing clear title can be very time consuming and expensive so having this taken care of upfront will save you a lot of energy, worry and money in the long run. The bank will be passing the home on to you free and clear. These charges may include liens on the property, past due property taxes.
The bank may also pay for some of the repairs to the property to get it ready for sale, having these repairs done in advance is not only an incentive to the buyer, but it may also allow for a quicker sell on the lenders side.

If the lender doesn’t do the repairs in advance they may be willing to provide further discounts to an already discounted price. This can result in even more savings to you especially if you can do some of the repairs on your own.

Now though buying REOs are an excellent investment strategy it does have its disadvantages too as compared to buying foreclosures at other stages in the process. I personally believe the biggest disadvantage would be that because you are purchasing the property after the bank has paid off all of the arrears and the legal fees you are leaving money on the table. Purchasing foreclosures like pre-foreclosures, short sales, and on the court house steps at auction can allow you to save up to 50% off the market value. Being that an REO is a little lower risk investment the rewards are also a little less. You can expect savings typically from 5% to 15% but also up to 25% if you know how to do it.

As you can see buying REOs can have its advantages and disadvantages it’s best to knowing these pro and cons can help you make a better decision in the long run.