Investing in Real Estate, 7th Edition

7

PROFIT FROM REOs AND OTHER BARGAIN SALES

Banks own more than 1 million foreclosed properties (REOs). VA, FHA, Fannie Mae, Freddie Mac, private mortgage insurers, and even OWC sellers hold for sale perhaps another million (or more) houses, condominiums, apartment buildings, retail stores, mobile home parks, and vacant lands. And this flood of REOs may continue to rise before it recedes.

Although the Resolution Trust Corporation (RTC) sales and auctions during the early 1990s created abundant REO opportunities in some areas (mostly Texas, Oklahoma, Southern California, and Arizona), today's REO bargains extend widely throughout the United States, the United Kingdom, Ireland, Spain, and other countries.

Indeed, the sale of REOs at distressed prices (as well as the sale of preforeclosure short sales and foreclosure auctions) have caused the drop in values for nearly all properties. As REOs pile up, even sellers free of financial distress must cut their prices to compete. Likewise for new homebuilders. Today, in many developments, recently constructed, unsold houses now compete directly with similar houses that builders had sold during the boom—only now competition occurs at the much lower, distressed-seller prices—as those former boom-time homebuyers default on their over mortgaged properties.

SAD FOR SELLERS AND BUILDERS, BARGAINS FOR YOU

Sad news for sellers means bargains for homebuyers and investors in two ways: (1) You not only can buy properties today at prices 25 to 75 percent ...