Buying REO property can be a tricky process, and many investors just starting out don’t know where to begin. People can flounder for months—even years—trying to land that "home-run" deal, and falling short every time. Most successful REO investors that I know either have the benefit of years of experience, or they have been mentored and educated personally by an experienced REO realtor or investor.
I have had the opportunity to educate others through writing and consulting, and I have seen how even savvy and experienced investors and real estate agents can make the same mistakes over and over again. Here I will share some of the most fundamental and essential advice to investors interested in buying REO properties.
Essential tips for buying REO properties:
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- Learn from others: Seek out an experienced REO realtor in your area. Ask that person questions. Gain this person’s confidence, and you will reap the rewards. If you live within 100 miles of a major city, there should be REO agents who handle your area.
- Know that banks are not idiots: That price tag you see on the home is there for a reason. If your offer is way out of the ball-park, it may be time to move on to another REO. That said, be aware of the price-drop "cycle" of a property. Again, befriending that REO realtor will put you at the front of the line.
- Be patient and flexible: The bank’s response time can vary quite a bit in regard to contractual benchmarks or amendments to the offer. You are dealing with extremely overworked, and perhaps underpaid people. Show some professionalism and compassion, and you should get the same in return.
- Keep the offer simple: Do not overload your offer with contingenies and "weasel-clauses". Do the opposite if you don’t want your offer to wind up in the shredder.
- Consider closing costs in your offer: Most banks will help pay your closing costs as part of the deal. Just know that this will lower their net return, just as if you asked for a lower price, so take that into consideration.
- Cash is king: In these troubled times in the lending community, regardless of your level of credit, having sufficient cash is vital.
- Make your offer reasonable from the start: It is critical that your offer be reasonable from the get-go, price- and terms-wise. While bank-reps are not "emotional" about their REOs, you can frustrate them to a point that they will refuse to work with you. Remember that they are looking out for their best interests—not yours. I will say it again—if the property’s price is too far out-of-reach for your needs, it is perhaps time to move on to another REO.
These are just a few tips to get your started, and the first one is probably the most crucial: Don’t be too scared or too proud to learn from others. Seek out advice from locals and industry veterans and be professional. Investors who think that there is nothing that they don’t know are often the ones who have the most to learn.
