How to Manage REO Properties

There are currently very few investments, of any kind, that represent the value of REO property.  These properties have been surrendered back to the lending institution and are now being offered for sale.  Needless to say, there are plenty of homes from which to choose.  Arizona real estate owned properties are no exception.  REO homes represent the full gamut of  options from quaint one bedroom condos to massive multimillion dollar estates with all the amenities that you would expect to find in the finest homes.

The banks have significant incentive to sell the properties in their possession.  Banks are set up as financial institutions, not as real estate management companies.  They do not have the type of resources to devote to maintaining large amounts of properties.  It is a very expensive proposition for them to carry these types of liabilities on their books.  This give you a distinct advantage when negotiating with them.  The bankers are charged with clearing the books of non-performing assets.  It is important to get as much for them as possible in the shortest amount of time.  Time eats into the resources of the bank as much as it will eat into yours, so you understand the urgency of getting the deals done.  This is not to say it is necessarily an easy process, nor guaranteed to be profitable.  You will have to work hard at making the deal so everyone can come away with an agreement that is acceptable to all parties involved.  These are professionals that have a great deal of experience negotiating large deals on a regular basis.  You are best served if you approach the deal that you intend to make with the same level of professionalism.  If for no other reason, if you intend to purchase additional REO property in the future, you may very well run into the same people somewhere down the line.  Building a strong business relationship is in your best interest, as well as theirs.  If you do it right you will find that the deals become easier once you are known to be a credible business partner. You will see how important this relationship can be if you work through a mortgage broker for financing.  The brokers with the best relationships can get the deal done a lot quicker, and with fewer surprises, because the banks are willing to work with them.

Once you have settled on a property it is important to assess the condition closely.  Because most of the dwellings have never been seen by the bank in their current condition they often do not come with warranties either expressed or implied.  They are sold as is.  You will want to have the property inspected for major flaws or damage.  This inspection will partly determine your offer price.  You must be realistic, not only in how much it will cost to bring the property to a salable condition, but how long it will take to do so.  You can also expect a counter offer from the bank.  Negotiating with them is not much different than negotiating for an owner occupied property.  Also, delays can be created because of the sheer volume of transactions that banks could be handling at any given time.

One final consideration that is as valid with an REO property as with any other, and that is location.  You will want to do extensive research in how well the particular area is trending to calculate your potential for profit.  Remember, if it doesn’t look good to you, it will not look good to a buyer.  The risk can be great, and if done with all due diligence, so can be the reward.

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