Financial Advice Blog

Real Estate Investment

The real estate foreclosure industry remains a fertile place to invest money. In the stultified US economy, banks along with other lenders especially dealing in real estate finance have built up a collection of foreclosed properties. This misfortune has created conditions for people with the means to invest in the market. The downtrodden economy has created a lucrative investment niche, called bulk REO investing.

What the heck does REO mean?

REO is an acronym for Real Estate Owned and is popularly used in real estate finance communities. Specifically, it refers to real estate owned by banks or a finance company because of a default on mortgage payments by the previous owner. Although bulk REO investing sounds like a new real estate finance term, it is actually founded upon the age-old concept of purchasing multiple foreclosed properties in a single transaction. In order to understand how this niche is doing so well, it’s helpful to first understand how foreclosure markets work and why it can be so profitable for people who can afford to invest in REO purchases.

Why Do Banks and Real Estate Finance Companies Sell Properties So Cheap?

Banks and other real estate finance lenders prefer to loan money and are not in the business of stockpiling real estate. Having too many foreclosed properties on the books is not good, as it becomes an accounting nightmare – what was once an asset becomes a liability if the property gets returned. To protect their own credit and interest, banks auction or sell real estate surpluses for less than cost or retail value. Real estate finance companies far prefer to take a loss than to be burdened with the responsibilities of real estate ownership. Banks are not interested in trying to rent the property, lease it or even sell it on a retail market, as this would mean having to do things like invest money to make necessary repairs to the property and protecting it from vandalism during periods of vacancy. They prefer to give others willing to invest money and time an opportunity to buy for less than retail as an incentive for a quick sale.

Why Are Banks Willing to Sell REO Properties in Bulk Quantities?

Even in today’s economic climate, those that can invest in real estate are buying foreclosed properties to sell them at profit. These are mostly individuals who can afford to not only buy the property, but make any necessary repairs and improvements before listing it on the retail market. That said, since banks own so many foreclosed properties right now, they are more eager than ever to sell them off. Therefore, in an effort to avoid the liabilities discussed earlier, real estate finance professionals have created bulk REO investing packages.

Are Properties Included in a Bulk REO Sale Worth the Investment?

It isn’t uncommon for bulk REO packages to include properties in sub-par condition. However, those looking to invest money in real estate, and who are often buying such properties for a mere fraction of their retail price, are eager to do so regardless of their condition and sometimes are even willing to purchase them sight unseen, as they realize the profit potential involved.

As bulk REO offerings become more common, those looking to invest money in the foreclosure market are discovering an enormous opportunity to create substantial real estate wealth. The original owner might have lost the property, but investors who see opportunities from real estate finance companies have been able to take a down real estate market, and get money out of it.

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