Thinking about buying an REO? How To Minimize Your Risk

An REO (Real Estate Owned) is a property that becomes the property of a mortgage company after a foreclosure action is completed.

Mortgage Companies are not in the business of owning real estate. Their core business is to make money from their loans. With today's rise in foreclosures, lenders are ending up with a large inventory of family homes. For this reason, savvy buyers can seize a prime opportunity to purchase a home at a great price, while investors can bolster their existing real estate portfolio.

2 Key Aspects to consider before purchasing an REO

1. Risk - The greater the risk the greater the reward. Its important to know that REO's carry some risk. They are always sold in ‘as-is' condition with little or no information concerning the condition of the property. Locally REO properties are often winterized which means that the utilities to the property have been shut off. Most REO listing offices will not allow the utilities to be turned on even to inspect the property.

2. Hard Work -Generally REO properties are dirty, can be filled with junk, and may be without appliances/cabinets/vanities/countertops etc. In addition, a vacant home is a prime target for burglary and vandalism. For these reasons buyers need to be realistic about the cost to clean up or fix up the property to live in or to sell. If you don't have the extra money for repairs or don't like the idea of putting in your own time to fix up the property, then an REO property will not suit you.

The REO market is risky and does involved work - with that said the best way to minimize your risk and amount of work is to form a team of real estate experts around you.

1. Realtor - Using an REO experienced Realtor, like myself, is a must. Not all REO properties are good investments and an experienced Realtor can guide you to a solid investment. Real estate offices that list REO properties tend to have a huge inventory of listings and lack any type of customer service that you will need. An experienced Realtor can advise if the price is a good deal and can make certain that the transaction moves forward.

2. Attorney - When buying an REO - lending companies will have you complete their own contract and disclosures. Since each lending company has their own documents it is imperative that you retain a Real Estate Attorney that has experience in assisting buyers purchase REO properties.

3. Inspector - An experienced home inspector is crucial! It is important that you know what repairs are needed and the cost associated with those repairs. It is the only way to accurately estimate your costs to restore the property. Even if the utilities are turned off you should hire an inspector. REO properties are sold "as is" with no warranties or guaranties. You must look at this property with an experienced inspector to understand the financial value of your total investment.

4. Lender - Should you use a conventional loan? A rehab loan? An FHA loan? A good lender will highlight the pros and cons of different loan programs so that you can make an educated decision. Your choice of lender can be the difference between closing on a property and having a deal fall apart on the day of the closing.

If you have the patience, the right attitude, and experts on your side, it is likely that you will find an REO property that is exactly the deal you've been waiting for. If you think purchasing an REO might be a great way to build your wealth call me. I am always happy to share additional knowledge and/or assist you in looking at some REO properties in any area of the city or suburbs of Chicago.