Why the bank will sell an REO cheap
Basically, a bank is not set up to deal with real estate. Sure,
they give loans to people, but really, they are not equipped to
buy and sell real estate. Because banks are not accustomed to
dealing with real estate, it often takes them awhile to get the
ball rolling so that they can repair the property, and get an
agent to sell the property. What this means is that while the
bank attempts to get their business together they are losing
money hand over fist and the federal government often penalizes
them for each and every REO that they acquire.
Because the bank is loosing so much money on each REO, they are
willing to sell it fast and cheap. In fact, banks commonly sell
an REO property for around 30% of its value just to be done
with it. Sure, they end up losing money on the deal, but they
end up losing less if they sell cheap now than they would if
they kept the property for another six months while they try to
pull everything together so that they can sell the property.
The great thing about working with the bank with an REO is that
you aren’t buying site unseen. Because you can walk through the
house and make all the inspections that you want, you can deal
with them in a way that will give you the best deal, and the
bank will typically be happy with any serious offer because it
will get the house off of their hand and they will stop losing
money.
Generally REOs are a great investment as long as you know what
you are getting into. The bank simply wants to get rid of these
homes, and if you find the right property and are ready to make
the serious investment, it can be a great way to get off and
running in the real estate business.