Whether you've always wanted to enter the world of rental real estate or are just hoping to add to your current portfolio, you may be considering a real estate owned (REO) property. During the Great Recession, many banks found it tough to sell foreclosed homes for enough to cover their investment—providing many investors an opportunity to snatch up a potentially valuable property at a garage-sale price. But with the stock market at all-time highs, do REO properties still make sense? Read on to learn more about what to look for in an REO investment.
Are REO Properties Still a Good Deal?
Even in 2020, REO properties can offer a great deal for the right investor. While prices have increased from their Great Recession lows, and are now more comparable to non-bank-owned properties that need a bit of repair or maintenance work, this also means that you're able to get a conventional mortgage on such a property. This allows you to take advantage of still-low interest rates and home equity loans and lines of credit.
Others may still opt for "hard money" loans, which carry a higher interest rate but also allow for far more liquidity. It's usually possible to refinance a hard-money loan after purchasing an REO home, which can help stabilize and often lower your payments.
But not all REOs are the same. Purchasing a distressed property in an up-and-coming area can leave you well-positioned to take advantage of rising home prices, but the same distressed property in a high-crime area could leave you open to legal liability. It's important to carefully evaluate every aspect of an REO purchase to ensure you've thought through any contingencies and are prepared to do what you need to in order to boost your investment value.
What Should You Consider When Investing in REO?
One of the most important factors for any REO purchaser is the status of the home's title. Most real estate transactions involve a general warranty deed, which assures the homeowner that they own title to the home free and clear and no one will later claim an interest in the property. But in REO transactions, banks may be able only to issue a special warranty deed. This warrants against claims or liens that arose after the bank took possession.
The last thing you want to do is purchase a property only to find that there are clouds on the title that prevent you from selling it to someone else. You'll want to invest in your own title search and insurance to provide you with a safety net if future title issues arise. For more information, check out companies like @properties today.