REO vs FSBO Pros and Cons??

Ok, I’ve been sticking my toe into the investment pool for some time now and I’m ready to just jump in and get wet, but I am a little confused on which way to swim.

Due to the abundance of REO properties, I makes logical since that I should find my best deals there, but many investors (from casual conversation) seem to stay away from these as much as possible, perferring distressed FSBO.

Can someone shed some light in this for me? I can’t seem to get a straight answer in this topic.

Loan Officer

REO mean Bank Owned Properties. They are generally offered with good discounts, with 15-35% equity depending on bank and who is in charge of that property. They will be listed with a realtor so you need to find a realtor that deals in REO, just start calling some offices till you find a good one. Make lowball offers, and wait for counter. I recommend escrowing at least 5-10K per deal on paper, helps contract go thru, even if you want to do 100% financing, you will just get your money back at closing. Also banks will pay for closing cost, just need to ask. REO can take alittle long to sell as some banks will want to go back and forth, but who doesnt… Also of the REO will require rehabs I find in my area…for some reason when you lossing your house it is always in bad condition…

Preforeclosure is your best bet many time. This is before the bank took the property over. if you find a seller who has had the home for along time, there maybe some good equity and short sale can be avoided. However many times a short sale will be needed to get a good discount of 30-50%. They require more work and knowledge. You need to have the seller fill out disclosure forms, give you a limited power of attorney to deal with the bank, sweet talk the person at the bank to giving you the price you want, knowledge on completing a HUD (one of the hardest parts) getting a BPO (Buyers Purchase Opinion) this is what gets price down and if you have cash or access to a great HML (Hard money lender) you can close fast, the banks like that and gives you some leverage actually.
Downside is, 100’s of people hit these sellers up weekly from the list they get and you need to sweet talk and be the people person to get them to go with you.

Distressed sellers… Can be ready for foreclosure so similar to above, or also looking to just sell and home is in bad condition, death forces sale, recent job loss etc. Buying the ugliest house in a nice neighborhood is one of the best ways to go. But this will require a rehab or at least flipping to other investors.

Which to go for…that is up to you. All have potental to make money. Distressed sellers not in foreclosure hear from less buyers. REO are easy to see and put offers in, but can take work. An excellent realtor wtih knowledge in this field can be golden…

One reason investors stay away from REOs is that they are not assignable, so wholesaling them is out. Also, there is usually a seasoning clause in the contract that you cannot sell the property for x amount of time (3-6 months usually).

Or if you do sell it within that time, it can only be for a small percentage more than the purchase price.

Personally, I like REOs, because they come without a lot of surprises since liens were wiped out at auction. You can also go into REOs with a realtor any time you want. They are always vacant, and you can go in with a contractor and not worry about insulting anyone with your comments :smile