Distressed Properties: A Game of Opportunities and Risks

As I was driving through DuQuoin this week I spotted a few very nice looking homes on the main route through town with a sales sign in the yard. Since I’m always on the lookout for great properties for the people I work for I stopped to take a look. These properties were all being sold by the local bank. The prices were lower than what I expected and they were in a choice location. These homes had been foreclosed on and were now sitting empty. These REO (real estate owned) homes are a product of foreclosure, they have usually been listed at an auction and have not had their minimum bid met leading to their listing on the traditional market. These homes can be often be purchased for a very fair price (often below market value) and make a great first home for a family just starting out or a smart investment property for a homeowner looking to branch out. With a little work you can have a great home for a great price.

The number one feature of an REO most people ask about is the price. The bank that owns the property is working to recoup their losses on the original loan of the property as efficiently as possible. As anyone who has owned and worked to sell an empty house can tell you an empty house can cost the owner big bucks in maintenance and taxes, because of this banks are often motivated to sell at a lower than average price so that they can stop shelling out the cost of holding the property. This can allow you to buy a larger home than you might expect because many are sold below market value, although this is not always the case.

An REO is considered a distressed property. This means that it is in the process of foreclosure, which can be a messy situation. One of the drawbacks of these homes is that they are sold “as is”. In most cases no repairs will be done before the sale and the previous owner may have lacked the capital to perform maintenance on the property. Some of these homes are beautiful and others are pretty rough. I would recommend that a person looking to buy an REO be realistic about this. If you are not willing to bring the property up to your standards it might be best to look at a traditional home sale. Many home buyers have had a great deal of success turning an REO into a dream home, but others have gotten in over their heads with the cost of repairs. This is why it is paramount that you work with a Realtor, you need an expert to help you find an REO that fits your budget, both for the purchase price and for potential repairs. A Realtor can help you find a happy medium between a fixer upper and a move in ready REO.

The next problem you may face with an REO is a more limited supply of lenders. Many lenders will not finance a distressed property. A Realtor can guide you towards lenders that do. I am aware of several lenders like this, so we can find a range of options. Keep in mind you will also need some capital for repairs. Lenders may find these homes riskier because of this. These homes will also take a great deal more paperwork than a traditional purchase and the purchase process can take significantly longer. A Realtor can make this process a lot less painful for you.

The bottom line is this: an REO can be a great investment for you or an absolute money pit. A Realtor can help steer you in the right direction but you must be realistic about the process. I have previewed several distressed properties for buyers in the past week and I have seen some that were move in ready and some that looked like a place you’d find Jason Vorhees lurking. Both homes have a great deal of potential. One could be an amazing home with a little work and the other already looked great needing only minor cosmetic work. Think about what you want, think about your resources. Do you know much about home repair? Do you have a great contractor who can do the repairs at a fair price? Are you willing to put in a little work for big savings? If the answer is yes than an REO might be right for you. As long as you are realistic about the potential risk and rewards you will have a good experience.

If you’re curious about REO properties I’m always here to help you find one in your area and on your budget. There are a lot of these properties in places like DuQuoin, Marion, Carterville, and Carbondale, places which are seeing a lot of growth. This means that with a little investment and a little time you can grow the value of your REO home and turn it into a profitable venture or a family home. Are you ready to give it a shot? No joke, I’m here to be your guide to local REO properties.

Advertisements

Author: joekingc21

Joe King is a real estate broker and a bow tie enthusiast. A Benton native with a history in sales and public speaking, he brings new perspectives and a high-energy style to all of the work he does. Using good old fashion salesmanship and the latest in social media marketing he’s in it to get results. No joke, Joe King wants to be your go-to guy in real estate. Ask me anything about real estate, I'm here to help!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s