Buying a Bank Owned (REO) Property
Like PT Barnum said, "There's a sucker born every minute"... but who knew they were all going to run our country? Now, every day I've been reading about the dire straits that America is in, but I think that the media is overlooking the fact that land in the USA has never been more affordable in our lifetimes, and, when this dip is over, it won't be this affordable again. Farm land, like we've got here in Fallbrook, gives you even more bang for your buck... people have to live somewhere, and they have to eat.
We can all do without bigger flat screens, newer cars, more diversified stock portfolios... but if you really want to invest in your future, buy land... own the place where you live. Interest rates are still at record lows, our housing market crash drags on as Washington tries to blugeon their way out of our nation's financial quagmire... take advange! Let me show you a starter home, an investment property, or an avocado grove or farmland. Consider starting a home garden produce farm to supply a local restaurant with fresh fresh fresh food.
I recently sleuthed out a new option for investing in real estate... the "self directed IRA" . This type of IRA might be just the ticket for real estate investors to purchase property tax deferred and take advantage of record low prices and burgeoning inventory.
What you can and can't do... You CAN buy investment property to rent or resell.
You CAN put the rent into your IRA as profit.
You CAN loan cash to other investors to buy and rehab homes.
You CAN make interest on your loan... either hard money rates (about 14% as I write this) or regular (about 7% for non instituational lending) and hold a first or second trust deed as collateral.
You CAN"T mix your IRA fund investments with personal funds.
You CAN"T buy a house and put in your own "sweat equity" to fix it up.
You CAN"T buy your personal residence and rent it from yourself.
Nonetheless... WOW! What a great choice to jump in to real estate with monies that have been earning .5% at the bank. Call me for more information.
The stats are out... now it's official... the banks have repossessed upteen homes in America and put them back on the market for you to buy. We call these "REO's" or " real estate owned". They make up a good portion of the homes on the market, as I write this in June of 2011, short sales and REO's are 40% of the resale home market.
So, what happens if YOU find an REO that you would like to buy? Is that a good thing? A bad thing? What????
As with everything, it's both good and bad. You will generally find the bank owned houses to be well priced. If they start out priced too high, a price reduction or two usually brings them down to fair market or slightly below fair market value. There's no emotion involved, usually the decisions are based on strict asset balance sheet. So, at first glance, the price may be very appealing. But, thing can go awry shortly thereafter.... the banks are usually unresponsive to many of the negotiation points that increase the buyer's (that's you) comfort zone. Termite repair may or may not be included in your offer... this can be huge and keep you from getting a loan. Minor repairs such as broken windows, leaky faucets, plugs that don't work... you're not likely to get kind of things repaired. Your home inspection could reveal any number of issues, large or small, that simply won't be handled by the bank.
Keep in mind that even if you're handy, hardworking, and willing to grab a shovel or hammer... you may not be able to get loan approval unless the bank that's lending you the money for your new mortgage is happy with the property. So that's the Catch-22... you may find a great deal on a bank owned house, but not be able to get a loan on it from your bank.