I'M LOST!!!

[Todd Gustafson]

Hi everyone,

Here is my situation:
I studied real estate investing some a few years back so familiar with the terms. I didn't pursue it because of divorce and an unexpected career change. After living with family the past few years, finishing college, and paying off some of my debt (working on the rest), and landing a new career (possibly even a 2nd which has more promise) - I need to move out in December. I'm 35 and the past few years have taught me A LOT!

When it comes to REO, this is in reference to a property owned by the bank. Am I correct that it is that simple? This is not necessarily a foreclosed home, correct???

In addition, do I simply go to nearby banks and ask for a list of the properties they own? I make a modest salary but with the new career will likely stay in the same area for a while; therefore, I'd prefer to buy than rent. I need something very inexpensive. I'm single and my daughter lives out of state so I can get away with a small place.

I'm trying to paint a picture for everyone. Would making offers on REO's be the best shot at landing a great deal? Is locating and purchasing the home by December realistic?

Any help, direction, or advice is greatly appreciated.

[Jon Holdman]

REO means "Real Estate Owned". Sometimes its OREO or "Other Real Estate Owned". This is real estate a bank owns that they don't want to own. Compare this with buildings, like branches or data centers, that the do want to own.

This is almost always property they acquired by foreclosure or some related process (e.g., deed in lieu.)

I've had some luck getting good deals on REOs. But its a LOT of work. Last purchase took about 20 offers before I got one accepted. My agent and I looked at something like 200 listings, pared that back and looked inside about 70-80 houses over the course of a couple of months. Every weekend we would have a dozen or so houses to see. A few would not be view-able for various reasons (already under contract, withdrawn, etc.) so we would look at 8-10. On a good weekend, we would make as many as four offers. On a bad weekend, only one or two.

REOs can be good deals, but they're going to be in the same ballpark as other houses in the area. Get on realtor.com and start looking at the area. See if the properties and prices fit your needs. You might get a REO cheaper than a move in ready house, but it will likely need work. Maybe a LOT of work. Depending on your cash situation, you may be better off buying a nice, move in ready house, even if you pay a higher price.

You need to speak with a mortgage broker or lender (or three) about your loan situation. The lowest down payment loans are FHA. But FHA has very strict guidelines about property condition and it would be a very rare REO that would qualify. Otherwise, you're looking at a larger down payment. A REO that's in very bad condition (I've seen them covered in grafitti and with missing exterior walls.) might not even qualify for a conventional, non-FHA loan.

REOs are usually listed on the MLS. With the big banks, just look on the MLS. It nearly impossible to get through the bureaucracy to buy directly. With a small local bank or credit union, you might be able to buy directly. One of the small banks where I grew up in rural MO essentially runs a used car lot right out front. They park all their repos out front and you just go in and make an offer.

Do the math on the buy vs. rent. There are many, many areas where its much cheaper to rent than buy. Essentially, the landlord is subsidizing your housing while waiting for appreciation. If you think you might move on in a few years, you can avoid the exorbitant transaction costs associated with real estate by renting. When you buy you're "renting money" paying interest, and that money is just as "thrown away" as rent money. So, take a complete look at the costs of buying vs. renting and your life situation before you jump into ownership. Lots of people bought during the bubble assuming prices would continue to rise and they could easily sell at a profit. Instead they ended up in a depressed area with limited job prospects and stuck in a house they can't sell because they're upside down. Had they been renting, they could have packed up and moved to an area with jobs. Instead, they're stuck.

Yes, its reasonable to buy and close by December. Even December 1 is four and a half months away. Entirely possible. You should, however, start looking for properties and getting the loan process started.