Investing in REO Properties Verus Foreclosure and Shortsale Property

With the recent housing crisis in the United States, many investors have seized opportunities to increase their real estate profits through purchasing distressed properties. Many new investors have also discovered that they can obtain properties for less than their market value and realize an incredible profit by reselling them. However, the question is often debated amongst veteran investors and newcomers alike, about what kinds of properties are better, easier, and more profitable to purchase. As most ultimately discover, it is by far better to invest in REO properties than it is to purchase real estate via short sale or foreclosure.

Purchasing a property via short sale requires that multiple parties agree on the sale price and terms. This means that before an investor can take control of a property, the seller and the bank have to agree to the sale, which may or may not happen. The process involved in negotiating the sale can be lengthy and there is a lot of time and paperwork invested before escrow is actually opened on a property. In short, the more parties that are involved in a deal, the less likely it is to be finalized, the more work it takes to complete it if it is finalized and far more time is invested overall.

On the contrary, when purchasing a bank owned property, there are only two parties involved in the negotiations, which are the bank and the investor. More often than not, the bank is as anxious to sell the property, as the investor is anxious to buy it. All of this helps to streamline the process and significantly reduces the amount of time it takes to complete the sale.

In comparing the purchasing of foreclosed properties to REO purchases, once again, REO purchases are much easier and far less time consuming. For instance, in California there is a 90-day default period that every homeowner is entitled to followed by a 23-day period before the property actually goes to sale. In certain situations, the 23-day period can be, and often is, extended. This means that if an investor has an eye on a particular property, it can take up to four months, or longer, for that property to actually go to sale. Also, certain states offer a Right of Rescission or a Right of Redemption to the homeowner, meaning that an investor may not ultimately get to keep the house even after purchasing it or the house may have liens on it.

In comparison, when buying an REO property, there is no lengthy waiting period, nor are there any liens or other issues that may prevent an investor from keeping the property. Also, REO's are listed on multiple listing services, meaning that they are as easy to find as other retail properties, whereas short sales and foreclosures often take special research in locating.

The process and time involved in buying an REO is similar to buying from a retail seller. One of the biggest values in buying REO properties, however, is that the banks are anxious to get rid of them. Banks and other lenders are not in the property management business and have no interest in keeping the properties. In fact, properties actually represent a liability in that they are not drawing an income for the bank, and can quickly succumb to deterioration or vandalism as they are left unoccupied. Banks are, therefore, anxious to get rid of them and are prone to sell them for far less than their market value to expedite the process. All of these reasons clearly indicate that it is better, by far, to invest in REO properties than it is to purchase real estate by foreclosure or short sale.