Everything You Need to Know About Buying REO Real Estate

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REO Real Estate

It’s easy to find REO real estate for the residential market. Sites like homepath, HomeSteps, and Zillow contain listings from banks and agencies like Freddie Mac and Fannie Mae. However, commercial REO real estate is much more elusive. Listing sites aren’t widely marketed and the market is extremely competitive. Commercial real estate often sells before foreclosure if the owner is in default.

You may be wondering what REO properties are and if they have a place in your investment portfolio. Real Estate Owned (REO) properties often allow more opportunities to increase profit margin. 

REO properties require less capital investment, lowering the entry point for new real estate investors. Keep reading to find out what they are, why you should be interested and where you can find them! 

What is REO Real Estate?

REO (Real Estate Owned) real estate refers to bank and angency owned properties transferred to the bank/agency due to a foreclosure or breach of lending contract. They typically have failed to sell at auction at a price greater than the lender’s loan balance.

Banks and quasi-government agencies like Fannie Mae and Freddie Mac are not in the business of managing real estate and will typically try to quickly sell REO real estate. The properties sell via real estate agents or online, typically on their website.

Where can I find REO commercial real estate for sale?

Commercial properties for sale aren’t typically listed with their single-family counterparts. We’ve compiled a list of some resources below:

  • Go to the county recorder’s office and request a list of all properties with NODs, or Notices of Default.
  • Contact local and national banks.
  • Find a Real Estate Agent who specializes in foreclosures.
  • Explore REO listing sites.
  • Visit real estate listing sites like Zillow and realtracs.
Best REO Listing sites:
What happens before a property becomes real estate owned?

When a property owner defaults on their loans, the bank does not immediately assume ownership. The owner may try to sell the property at auction first. 

To find pre-REO property you can find auctions in the newspaper or you may go to the county recorder’s office to find Notices of Default.

You may be able to contact the seller before the property goes to auction! Investors competitively pursue these properties, so getting your foot in the door first presents a serious advantage.

Best Auction Listing Sites:
Risks when buying REO real estate

REO real estate is sold as-is and often goes to auction. You may most likely won’t have an opportunity to do a thorough inspection before purchasing.

When you win the auction, you purchase the property as-is. You are responsible for all repairs, maintenance and capital improvements.

Time is another important risk. Most investors purchase distressed properties with bridge debt. The longer the property sits without generating revenue, the more mortgage interest that will be capitalized on your future, stabilized property.

After the property is stabilized, you might have trouble finding permanent debt. Market conditions can may change, making it hard to find advantageous financing.

Do your research – not all REO properties are bargains.

What are the benefits of buying REO real estate?

Banks and agencies are motivated sellers! They want to dispose of REO properties as quickly as possible. They are not property managers and do not want to invest their time and energy into marketing and maintaining properties.

Furthermore, these properties may only suffer from cosmetic fatigue. Depending on market conditions, you might be able to can significantly renovate these properties with a small capital investment.

You can also purchase the discounted property and turn it into a cash flowing rental. You can make money on two fronts: profits from rental income and increased equity in the property!

REO properties lower the threshold for real estate investors to enter competitive markets. Investors can often acquire properties within more strict investment guidelines.

Explore Your Options!

REO properties present serious investment potential! 

The market is often competitive, so be ready to offer aggressive purchase terms.

In addition to real estate properties, consider but do not forget the Federal Agencies sales. The USDA, General Services Administration and FDIC regularly dispose of commercial real estate.

Do your research, and provide yourself with some cushion for when things do not go as planned.

More from Bullpen:

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Retail Disposition Model

Yield: (Cash On Cash) and Why It Matters

Contributors

Reginald Avery (view profile)

Reginald is a Bullpen freelancer with extensive experience working for Fannie Mae. Before real estate, Reginald earned a Masters of Law (JD) from Columbia University. Create an account on Bullpen to work with Reginald on your REO-related projects.

Written by Bullpen Editors
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