REOs are properties that have been foreclosed on by the lender and the properties are now owned by the lender. The lender doesn’t want these houses and in some cases they don’t want to take them off their books because of cash reserve issues. You see, banks are able to lend money based on their cash reserves. When they sell these assets at a loss due to the drop in values it reduces the basis of what they carried these houses on their books. This impacts their ability to lend money and for that matter to stay in business. The feds will close down a bank when their reserves are too low. That’s why many banks have held off on foreclosures in hopes of a “helping hand” from the government.
But, there are still plenty of opportunities out there and you can find REOs in every part of the country. Try your local bank or even realtors. Once you find them you have to know what to do with them. Whenever you buy a property you must have an exit plan.
Usually you have four choices:
- Buy, fix and sell
- Buy and hold as a rental
- Buy and lease/option to a potential homeowner
- Wholesale the property to another investor that will do one of the above.
Today’s market is not nearly as conducive for buying, fixing and selling as it was when mortgage money was easy to get. In fact, it’s much more difficult for potential buyers to get financing. It’s possible, but not nearly as easy as it used to be and it looks like this will not change in the near future. In fact, the Feds are discussing eliminating Fannie Mae and Freddie Mac which could mean that lenders will have to be portfolio lenders. This means that if they make a loan, they will have no place to sell it and will have to keep it in their books.
Buy and holding properties for rentals can create tremendous wealth. The caveats are to buy in the right areas and have a strong property management team. This along with selling on lease/option or renting on lease/option is the most conducive strategy to take advantage of the current real estate market. Anyone can find a good opportunity to purchase if they know what to look for in a house, neighborhood and community. It’s what comes after that is so important and will determine your likelihood for a successful cash flow house. It’s called management. There are many companies that provide this service and you are wise to interview more than one company. You must feel comfortable with whomever you choose and this is as important as selecting the right house. This is not the area to skimp on because this is what allows you to be free. If you’ve ever managed property before, you’ll know what I mean.
The other exit strategy of wholesaling properties is nothing like it used to be. This was the fastest, easiest way to make money in real estate. Most of the players in this arena have gone by the way side as mortgage money has all but dried up for investors.
Buy Cash Flow Properties