Making Big Bucks Buying Bank Owned Houses

The biggest problem many investors face is cash flow. Historically, houses appreciate faster in value than rents increase. This creates a tougher and tougher time for the investor to find opportunities to buy with solid cash flow.

Thanks to the sub-prime meltdown, record numbers of houses are being taken back by the banks. These record high foreclosures and tighter financing guidelines have created the perfect opportunity, AGAIN, for the savvy investor.

Banks are not in the real estate business, they are in the lending business. When banks take back a house in foreclosure, to them it becomes a �non-performing asset� and actually prevents them from lending additional money. The more houses they hold, the more expenses they incur in holding costs and on top of that it reduces there ability to lend which ultimately reduces their ability to generate income. It�s a downward spiral if they don�t move fast to dump stockpiling inventories. Higher Expenses + Lower Income = Motivated Sellers

Bank owned houses or REO�s (which stands for Real Estate Owned) as they are commonly referred to, are always a good opportunity, but in hotter markets even the banks get more money. Due to the current market conditions, bank owned houses are selling for less, and there are record high levels of them.

Many local Hard Money lenders (equity lenders) are holding back and not making new loans as the market corrects and prices continue to slide. This is actually good news. The tougher it is to fund a fixer-upper bank owned house or REO, the more inventory will stack up and force the banks to dump them even cheaper.

Those with a winners� attitude will line up as many ways to fund them as possible to take advantage of this once in a generation buying opportunity.

Keep in mind, just because a property is owned by a bank and is for sale on the MLS (Multiple Listing Service), it doesn�t mean it will always be cheap. Many foreclosed houses are not trashed. I�ve seen some that still have the vacuum lines in the carpet from when the former owners moved out.

The deals though are in the Bank Owned Houses that are problems. Investors are likely to get the best deals on the houses with the most amount of repairs. In some cases extensive repairs will eliminate many funding options for uneducated investors. Many loan products wont fund house if they are too beat up.

Offer Quick Sale
Cash/Hard Money/No Financing Contingencies
Eliminate weasel clauses. Do due diligence first, make your offer.
Look for problem properties
Mold, smell, extensive damage, houses that a traditional mortgage co. would not fund on. Be a problem solver.

Buying Bank Owned Properties
In the world of real estate there are many, many types of properties that you can buy. The majority of the time people hire a real estate agent to help them buy a property that is listed on the MLS (multiple listing service) of the area that they are looking for. Whilst most people go through this route, other, perhaps more astute, or bargain hunting people, look at houses that are either in foreclosure of REO (Real estate owned) by a bank or Loan Company.

A common misconception that people outside of the real estate industry make believes that foreclosure and an REO purchase is the same thing. Although they are similar, they are in fact different; more precisely they are corollaries of each other, with an REO being a direct result of a failed foreclosure sale. To understand the difference between the two and how they vary from each other it is best to define what each is, and their respective merits.

The term Real Estate Owned propriety is sometimes used ambiguously, but has a specific meaning in the real estate industry; a property that has been fore-closured on by a bank or Loan company and has reverted back to the ownership of the lender. So as already explained above an REO is the result of property that has been foreclosed on, and is produced only as a result of a failed foreclosure sale.

Knowing that an REO is the result of a foreclosure leads us to wonder what is foreclosure, what are the benefits of buying a house that has been foreclosed on and what are the reasons why they fail to find a buyer.

Under the terms of foreclosure a bank or Loan Company reposes the property due to the tenants inability to continue with payments on their loan; that they used to purchase the property the first instance.

Once the foreclosure notice has been issued and foreclosure has started the bank or Loan Company legally has the right to sell the property; regardless of whether the tenants haven�t moved out yet.

In order to purchase a property in a foreclosure sale there are a number of items that the bidder needs to successfully complete. Firstly the buyer has to submit a minimum bid that includes the following:

The loan balance on the property. All accrued interest on the property Attorneys fees All costs associated with the foreclosure process.
Regardless of the above, in order to bid at foreclosure the buyer must also have a cashier�s check in hand for the full amount of the bid. If the buyers is successful then they will be offered the house in its �as is� condition; complete with tenants who need evicting and liens secured on the property.

Because of all the difficulties and lack of concrete benefits in buying at foreclosure, most people who want to buy a foreclosed property will go through the REO route.

The REO method of purchase offers much more benefits, incentives and less stress than the foreclosure method.

When a bank or Loan company takes back a property they then have the property listed as a sellable asset on their books. The role of the bank is to maximize the wealth of its shareholders. If the foreclosed property can be sold to release cash to invest, then this is the main motive for the bank or Loan Company; sell the property and invest the cash.

In most situations a bank will be looking for a quick sale, and as such will offer many incentives and benefits to prospective buyers:

Savings of up to 20% off the market value of the property Market an REO purchase as the most simple way for first time homebuyers and experienced investors to buy properties Give prospective buyers have immediate access to the property for home inspections Remove all back taxes and liens Allow negation on rehab costs, interest, closing points, loan amount, etc. Describe the purchase as nearly 100% risk-free Accept a less than normal down payment
Although the benefits of an REO seem to out weigh those of a foreclosure purchase you should not take them at just face value; you should always look into exactly what you are getting and what you are liable for, should you choose to purchaser a property.

In a REO sale the bank will evict the tenants (or you could leave them there and let them pay rent), remove any liens etc and do the basics. Most of the time however the bank will not make any repairs to the house and want to sell it to you in what is called �as-is� condition: the condition the house was in when it reposed it. IF this is the case you should seek the services of a home inspector, to find out the sate of the property and to help you decide whether you wish to continue the transaction.

Although a bank owned property might look like a good deal on the outside, it is necessary that you do your background research on the property before you commit to any contracts. Your first priority should be to find out what the house is worth in today�s current market; h