If you are looking for an investment property below market value, your best option is to seek out REO and short sale properties. Real Estate Owned (REO) properties, are properties that the bank has foreclosed on and now owns. A short sale is when an owner works with the bank to sell a home for less than what is owed in order to avoid foreclosure. Make no mistake, banks want to make as much profit from these properties as they can, but the last thing they want to be is a property owner. Specifically searching for REO and short sales offer many advantages that “normal” properties for sale do not. Listed below are a few tips to get the most bang for your buck as possible when you’re seeking out these properties.
1. Due Diligence
Not every REO or short sale property is a great deal. Remember, the property is being offered by the bank for a reason. It is your job to figure out how to make the property work for you. Look beyond the sale price and figure out what you would do to improve the property to produce an income. You should also look at the title and find out if a foreclosure notice has already been filed and see exactly how much is owed to the bank. This information is extremely valuable because it will help you to determine the correct amount to offer. When looking at the title, also make sure to find out if there is more than one loan on the property. If this is the case, you could have an issue. The first lender’s loan takes priority! If there is more than one loan, then the second lender will need to get paid something in order to gain their cooperation.
2. Sale Comparables
The only way to truly know how much a property is worth is by comparing the property you are interested in with like properties in the area. A good “comp” will be a property that has sold recently, that is the same property type with similar features and square footage. When you find good comps, it is important to dig deeper than just what the property sold for. Find out how long the property was on the market and what the original listing price was before it sold. Also, don’t be afraid to call up the parties involved and speak with them directly. All of this information is available via public record, you just need to call the county or work with an agent who has access to a comp database.
3. Buyer’s Agent
If you are a first-time buyer, you will benefit greatly from hiring a real estate agent who has experience with REO and short sale properties. Hiring an experienced agent whom you trust is extremely important. Dealing with the bank is much different then a typical seller. Another big advantage to hiring an agent is the fact that experienced short sale agents will be able to find listings that are not advertised to the general public. Many times, a bank will not let the fact that they are entertaining short sale offers be known, as they are hoping that property sells on its own without them having to take a loss. Without an agent, it is hard to find these pocket listings.