Are Foreclosures, Bank-Owned, and REOs Still a Top Source for Finding Discount Real Estate?
First off, let me clarify that foreclosure, bank-owned and REO can mean the same thing. The bank foreclosed on a house, nobody bought it at the auction so the bank took it back and is now selling it as an REO on the MLS (multiple listing service). To be technical foreclosure is a process, bank-owned is a fact and REO is a designation the bank gives properties it has taken back.
So if the bank had to take it back, they are going to just fire sell it to get rid of it, right? In some cases yes. In most cases in today’s market, not so much. I’m here to tell you buying REO’s in 2010, 2011 and 2012 was a low hanging fruit and we were able to pick up some nice discounts. We helped investors get in on the opportunity buying millions of dollars in REO’s during that time frame. However, in Spokane County the tide seemed to change in 2013 with a shift to retail type pricing and accepting longer market times in hopes of maximizing offer potential.
As of this writing in August 2014, supply and demand has allowed REO’s to hold pricing strategy with some exceptions. Those “some exceptions” are the properties we want to purchase.
**Insider tip** Wait until the REO is at least 55 days on market before sending in a low cash offer. There are very rare circumstances where local lenders will accept a low cash offer in the first 30 days, but for the most part, the bank wants to see adequate market exposure before taking a large discount. At 55 days they are probably considering a price change around the 60 day mark and we may be able to time the offer perfectly!
So now you know how to target REO’s. Can you still buy them at a large enough discount to flip them? Sorry to be the bearer of bad news but the low REO ship has sailed. In Spokane County bottom of the market was 2011. That doesn’t mean you can’t find some diamonds in the rough or a motivated lender today using a strategy like the one above, it just means fewer and further between and REO’s are not the low hanging fruit of residential real estate investment like they were a couple years ago. Instead, today you may find better discounts that are not REO’s. For example at Extant right now we are sourcing some of our best deals through referrals, wholesalers, short sales and direct mail.
It’s not the exact same story in commercial real estate right now with the exception of apartment buildings if you group them into commercial. Apartment building prices are healthy. As for office and retail, lenders are still wading through the loans/notes that are due that have not been paid, foreclosures, and a commercial market with some momentum but still pushing to recover. REO’s can be purchased directly from the bank and they are pretty motivated to get them moved because there is still not a surplus of buyers for commercial real estate. There are increasing trends suggesting the commercial market is continuing to improve.
Stock market is at an all-time high. Stock players beware! As the cycle goes when the stock market crashes people run to real estate. Beat the rush and contact us today about investing in real estate in 2014 by phone at 509-258-5000.