If you’re in the market for an inexpensive investment property, consider a short sale or a real estate owned sale, commonly referred to as anREO. With these types of sales, you can typically purchase a property for a fraction of its market value because the current homeowners are unable to pay their mortgage. But short sales and REOs can be tricky, and there are a few things that you should understand before you begin your property search.
Purchasing a Short Sale
In a short sale, the homeowners own the property that has been put up for sale. It is called a short sale because the money from the sale will still fall short of the total amount of debt faced by the owners. Short sales are usually listed at below market value for the property. The process ofbuying such property can belong because it involves three parties: buyer, seller and lender. The lender has to agree to the selling price, which is usually set low by the owner to attract buyers. Agreement on the asking price may take longer if multiple lenders are involved.
Purchasing an REO Property
An REO, or real estate owned sale, is one where the home has gone into foreclosure and is now owned by the lender. While these homes typically sell for a good price, buyers should know that they must buy the home in as-is condition. Often the properties are in a state of disrepair because the homeowners were unable to properly maintain them.
If you’re able to pay for a property in cash, consider checking out a foreclosure auction. The auction process is dictated by the county in which the property is located. Foreclosure auctions are often advertised in local newspapers and online, which make it easy to find one in an area where you are looking to purchase property. However, with foreclosure auctions many counties require potential participants to verify their identity and prove their ability to pay in cash.
A possible deterrent for those considering this kind of property purchase is the seller'sright of redemption. This gives the original homeowner the right to reclaim the sold property within a certain period by repaying the loan and fees on the house.
Find the Right Real Estate Agent
If you’re interested in purchasing a short sale or REO, it’s preferableto work with a real estate agent who specializes in these types of property sales. Look for anagent who closes several short sales or REOs every month. Competent short sale or REO specialists will have relationships with most major lenders, making them adept at handling the paperwork, and possibly even giving them access to properties that have not yet been publicly listed for sale.
Choose a Valuable Location
A low selling price may be attractive, but it should not be the only consideration when choosing an investment property. The location of the property dictates the long-term value of your investment, so it should be chosen carefully. Properties in a good neighborhood located close to schools, banks, hospitals and the market sell for more at foreclosure, but they offer better returns on investment.Good neighborhoods attract stable tenants and higher rents, and property rates in such places tend to steadily appreciate.
If paying less than market value for a property appeals to you, then a short sale or REO might be the right choice. With an informed approach, the right real estate agent, patience and some luck, you could end up with a good deal on a property that couldearn you rental income for years to come.