When you intend to buy a property and do so by paying a mortgage every month, there are times of misfortune (that occurs in everyone’s life) that result in an inability to pay off the mortgage for whatever reason. So, what happens to properties that are in the possession of the bank as a result?
The property finds itself at a foreclosure auction at the mercy of bidders who are interested.
However, as there are exceptions to every rule, in some cases, buyers will not show an interest in these properties even though the bank might set the opening bidding amount for at least the outstanding loan amount. So, in this situation, the property is listed in the bank’s books as real estate owned (REO), categorized as a non-performing asset, which is really a liability from the bank’s point-of-view as their objectives in lending money has not really been achieved.
And this is where real estate investors can cash in because the bank wants to get rid of the property preferably in bulk, and sometimes use the services of a broker to do so among other options.
From the investor’s point of view, this could mean an excellent investment opportunity with cheap property that is waiting to be owned, however, there are some tricky situations that investors can get into as some of these properties are in poor shape and would require repair and maintenance on several fronts if you are not careful.
But overall, buying bulk REOs work out to be a good and very cheap deal in the long run, as long as the investor is open to adequate advice, and moreover understands that banks consider hard money to be assets in the business.