The Drawbacks of REO Opportunities | Michigan Real Estate Wholesalers


Wholesaling REO HUD homes is a real estate investing strategy often overlooked by many who simply don’t understand how it works. So could this be a profitable source of new distressed properties to fuel income or is it simply overrated?


English: An example of a real estate owned property in San Diego, California. (Photo credit: Wikipedia)

REO HUD homes are often dismissed, even by veteran real estate investors because they are misunderstood or investors have been so spoiled or used to acquiring other properties they haven’t needed to pursue them. However, they may now certainly be worth a second look, especially when many are finding competition for marketing directly to homeowners and for bank owned REOs heating up.

REO repossessed houses for sale | Why Consider Wholesaling HUD Homes?

While banks have rapidly become almost impossible to work with on decent terms in some areas and homeowners have become immune to marketing messages the government continues to load up on vacant, foreclosed homes in excess of a couple hundred thousand.

They want and need to be rid of these homes and offer some pretty sizable discounts for investors buying them. Exactly how much they go for varies widely but some investment companies have built sizable wholesale businesses on them and have consistently found properties at 35-55% of ARV (after-repair-value).

What many don’t know is that these properties can be scooped up with very small deposits compared to other options out there today and many are often already being repaired by HUD. Sometimes this simply means new flooring but in others it can extended to whole new bathrooms and kitchens and even roofs.

How to Buy REO HUD Homes Detroit Michigan

‘HUD homes’ aren’t any different to any other homes; they were simply houses which had FHA loans on them prior to going into foreclosure.

What is different is how these properties are advertised and sold. They are offered through HUD’s auction system. Anyone can bid on them and some might be very surprised at how inexpensively some are let go but they must be bid on via an approved real estate broker.

Not all brokers are approved but it isn’t that hard to find one serving every area that is and a list can be obtained directly from the HUD website. Of course all are not created equal and given that bids are weighted on net proceeds to the seller it is smart to find a broker who will be willing to reduce their commission so there is more room in the deal and other bidders can be beaten out without giving up spread.

However, while there are big profits and plenty of volume of deals to be had wholesaling HUD homes investors need to be prepared to deal with government contracts, government time-lines and inefficient systems and dealing with their choice of title company.

Still for those looking for a new source of discounted property deals this strategy could deliver a huge pipeline of homes for flipping, which FHA has already approved loans for, potentially ensuring they are easy to turn over quickly for attractive paydays.

Real estate owned or REO is a class of property owned by a lender after an unsuccessful sale at a foreclosure auction. When homeowners default on several mortgage payments, the home will be forced to foreclose. The property will be sold at a foreclosure auction to recover the loan. In the foreclosure auction, the opening bid at a foreclosure auction will be at least the outstanding loan amount to recover the debt. If nobody bids at the minimum amount, the lender will end up with the property. Those lenders are typically banks, government agencies and government loan insurers. Many people think that those lenders aren’t willing to deal with the property; they simply want to give away it as soon as possible. Foreclosure investors can always find the best deals in REO properties. However, that’s not always the case; there are several drawbacks of REO properties

REO properties are not always sold below market value

Many banks are developing REO departments as there are an increasing number of foreclosures. Banks often ask their local REO brokers or analyze the market themselves to determine the current value of the property. If the debt has already been written off, instead of selling the properties in a hurry, banks would even try to get the best price they can and make a profit. In other words, REO properties are not always sold below market value.

Banks are motivated to turn a profit

Even though real estate is not the core business of the banks, banks are still willing to diversify their sources of income. Some banks are quite capable of rehabbing and selling properties. Some even offer options to a homeowner just as foreclosure investors would do. When a bank decides to sell a property, it may also try to make a profit from foreclosure investors. That’s why even buying REO properties you should do your homework and be aware of the current market prices.

REO properties are often sold to particular investors.

It is common that banks partner with several foreclosure investors or have several investors they prefer working with. The reason is that, banks don’t have time to deal with all the calls and enquiries. Partnering with several foreclosure investors enables banks to sell the properties more efficiently.
Even banks list properties with a broker; they may prefer to sell to someone they know.

repossessed (REO) houses for sale in michigan

boar bristle

Related Blogs

Comments are closed.

You might also likeclose
%d bloggers like this: