The current real estate market causes most investors to think twice before buying a piece of property, regardless of how great a deal it might be. While it’s prudent to use caution, don’t be penny wise and pound foolish. There are two areas in real estate that are begging to be noticed: short sales and REO properties.
A short sale is when a property is in default or foreclosure and the lender agrees to consider offers below the amount owed on the property.
An REO property is a home or other piece of real estate where foreclosure has been legally completed and is now owned by the mortgage lender, typically a bank or other financial institution. REO stands for “Real Estate Owned.”
Whether a real estate investment rookie or seasoned veteran, be sure to include short sales and REO properties in your list of possibilities when looking at potential acquisitions. Here are five things to remember in your search:
Specialization – Real estate investment is best done with the assistance of a Broker/Agent. Do your homework and choose someone with the appropriate qualifications to help you navigate the twists and turns of short sales and REO properties. Having good help and sound advice can make or break your chance of long term income potential from a property.
Inventory – The increase in foreclosures means an increase in REO properties. Banks are inundated with empty homes and vacant businesses, giving the buyer the advantage in negotiating an offer below market value. The lower the price when you buy, the higher your potential rate of return.
P/E Ratios (Price/Earnings) – As property prices go down, mortgage payments shrink, increasing profit potential for rental properties. You can attract tenants with reasonable rates and come out ahead with lower loan payments. Research the rental rates for the area and compare with the price of the considered property to maximize your return on the investment.
Good Questions = Better Answers – Short sales may give you the deal of a lifetime if you know what questions to ask. There are a lot of nuances when dealing with short sales, and getting the right information can help you decide if you want to make an offer. Two crucial things to ask are, “Has the short sale package been submitted to the lender?” and “Has the bank done a BPO (bank price opinion)?”
Patience – When making an offer on a short sale, expect to wait on a reply from the lender. Sometimes that wait will extend for months. In the meantime, circumstances may change and bring the market value even lower. This increases your bargaining power with the bank to negotiate a cheaper price. There’s no guarantee that any lender will accept a short sale offer, so be prepared to walk away if the lender rejects it or counters with a price outside your budget.