REOs represent unique investment opportunities for serious real estate investors. An acronym for real estate owned (REO) foreclosure, REOs are properties owned by lenders whose borrowers defaulted on the loan. Due to the foreclosure process that allows the lender to retain ownership of the asset, REOs end up on the books of banks, mortgage companies, and other lenders–including some marketplace lending platforms like Sharestates.
Banks and REO Properties
No lender wants to end up with a portfolio of properties on their books. That defeats the purpose of their institution. A bank, for instance, would rather see the income from the loan product rather than a property that will simply sit without a resident or ongoing maintenance. The bank has no one on staff whose job is to provide upkeep for properties. Therefore, such real estate usually ends up falling into disrepair and the value declines.
The same can be said of other lending institutions such as mortgage companies and real estate investing platforms. They are in the lending and investing business, not the real estate upkeep business.
For that reason, REOs typically sell for much less than their actual retail value. They represent a loss to the lender, and the longer they sit, the more the lender will likely lose on the resell. One way to find such properties is to inquire at a bank or other lending institution to see if they have such properties available to investors right now. That can be hit or miss, but there is usually a good chance that a lending institution has at least one–especially if they are a large institution and the economy has taken a downturn. Following a large number of foreclosures in a particular geographical region, an investor will usually have an easy time finding such properties.
Many banks list their REOs online, which makes it easy. Here are a few banks’ REO listing web portals:
Where to Find Non-Banked Owned REOs
Of course, bank websites are not the only place to find suitable REOs for investment. There are some real estate websites that specialize in REOs, or that include REOs in their sales listings. Here are a few of those sites:
Why REOs Make Good Investments
REOs are usually good investments because they are discounted properties due to the fact that their institutional owners do not want them on their books. They represent liabilities, not assets. They are typically priced to recoup some or all of the lending institution’s investment rather than turn a profit.
While the properties themselves are discounted, investors should prepare to make further investment in repairing the properties, updating them, or providing some maintenance and upkeep before they are able to sell or rent them. Once the repair and maintenance costs are factored in, many REOs can turn their investor buyers a nice profit.
While Sharestates does not specialize in REO properties, and while we have a strict 34-point underwriting process to vet properties and borrowers, it does happen that a borrower will default on a property loan. Our REO rate is a very low 0.17 percent.
Investors looking for REO properties can check the property listings at Sharestates and see if there are currently any properties held by the platform.