REO 101

Everything You Need to Know About REO

Investing in commercial real estate has been one of the most dependable paths to financial independence in the United States for centuries. Unfortunately, finding the right commercial property to buy is easier said than done.

What Is Real Estate Owned Property?

An REO or real estate-owned property is a property that a lending institution owns. Banks become commercial real estate owners when borrowers cannot make their payments and fail to find new buyers via short sales or auctions. Commercial REOs can be particularly difficult for small-time investors to secure.

The Benefits of Investing in Commercial REOs

The most significant advantage of buying commercial real estate-owned property is the potential for superior returns on investment. Many commercial REOs sell for far less than their market value due to a variety of factors. If a property simply needs a minor cosmetic facelift, a buyer can reap a substantial windfall.

Another great benefit of commercial REOs is the quick turnaround times that often accompany their sales. To put it in simple terms, banks are “motivated sellers” since they do not want non-performing assets on their balance sheets. Banks earn their profits by lending money, not by acting as commercial property managers.

Lastly, commercial REOs allow entry-level investors to get into the commercial real estate game without much capital. If you do a little homework and find a diamond in the rough by scouring commercial REO listings, you can quickly obtain a great property at a fraction of its value.

A Few Notable Commercial REO Downsides to Consider

The most significant risk that commercial REO buyers assume is the possibility of unexpected repair and renovation costs. Most commercial REO properties are sold “as is” and come with no guarantees that they will be viable investments. What’s more, buyers typically do not have much time to assess property beforehand.

Another major wrinkle to ponder is the financing arrangements needed to pull off commercial REO investment. If using a bridge loan to buy a commercial REO, getting the property up to snuff ASAP is critical. Finding a long-term lender to finance your play can be difficult even after the property is renovated.

How to Find Commercial REOs Worth Buying

For the most part, sites like ZillowTrulia, and Redfin are not the best places to find commercial REOs. The good news is that the USDAHUDFannie MaeFreddie MacWells FargoBank of America, and many other lenders maintain their own commercial REO real estate online listings worth perusing.

Most banks that own REOs use realtors to offload the unwanted property. Becoming good friends with local realtors specializing in foreclosure deals is a wise move if you are on the prowl for viable commercial real estate. Top realtors will pay for themselves and then some by directing you to great REOs before they hit the market.

Not every commercial REO worth looking at is owned by a nationwide lender. Many local credit unions have foreclosures on their books that they would like to sell in a hurry. Contact regional banks nearby and ask to speak with their REO specialists to get a better read on your options.

Get Started With REO Properties the Right Way

Commercial REO investment opportunities are everywhere if one knows where to look. Perform extensive due diligence and “kick the tires” on any deal before you make a firm commitment. As long as you understand the potential pitfalls of REO speculation, there is plenty of gold in that market, no matter what the overall economic situation may be.

A Better Way to Close with BNN Services

Since 2008, BNN Services has been trusted by title agencies, mortgage lenders, servicers, and consumers to perform loan and document signings in multiple languages across the country. Unlike other signing services, BNN Services “touches” each and every file 8 or 9 times to ensure the process moves forward free of delays. That’s why we’ve completed over 250,000 signings in all 51 jurisdictions and maintained a closing ratio of 96 percent.


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