How To Find Bank Owned REO Foreclosure Properties

How To Invest In REO Properties

Whether you want to rehab and flip, or hold and rent, REOs — or Real Estate Owned properties can make you a lot of money BUT not without potential pitfalls. Knowing the risks will help you avoid costly mistakes.

It’s the beginning of a new year and as such, PIC is focused on smashing last year’s numbers — we already have a proven profit formula as well as strategies and automations for rehabbing. That means our focus for 1Q22 is going to be lead generation — and REOs are a big part of that.

Real Estate Owned properties are properties that have reverted back to the bank or mortgage lender. We’re talking foreclosure. Basically, the bank wants to get their investment back. A lot of the time, these properties are distressed — which means rehab investors have an opportunity to swoop in for a low-cost acquisition, do the rehab, and make a killing on the resale.

Once a borrower defaults on the property, the lender will start foreclosure proceedings — the next step is to sell it at auction. Banks will usually bid on their own properties, with their bid amount being the minimum they need in order to recoup their initial investment.

Buying from a bank isn’t quite the same as buying from a private owner, but there are some positive benefits — for example, banks will usually clear any tax liens on the property before they list it for sale.

Now, that doesn’t mean that bank-owned properties are a guaranteed golden deal — you still need to do your due diligence and get inspections and appraisals. Particularly, inspections should identify any structural issues or pest infestations. Appraisals should be done to confirm the bank’s price matches the property’s value — if you won’t be able to sell the property for a profit, there’s no point in making an offer, right?

REOs are often sold AS-IS — which means you need to confirm the work that needs to be done, so that you can maintain your rehab budget.

You’ll also want to consider a separate owner’s title insurance policy (aside from the lender’s policy) but be aware, — in a normal real estate transaction, the seller would pay this cost — with an REO, you’ll likely have to front the cost yourself which adds to your cost of acquisition. This fee varies from state to state but an example is $5.75 per $1,000 of the purchase price (often with a limit). That means title insurance for a $100,000 property would be $575.

Bank-Owned Property Listings

So how do you find these properties? Well, by going straight to the source!

Banks often have a foreclosure page and will list their foreclosed properties — and there are some pretty cool auction sites as well. What’s important to realize though, is that these sites aren’t like going to Zillow or for listings — the banks may, or may not, have properties available. Especially in the wake of the 2020 pandemic (where foreclosures were basically frozen), it can be challenging to find available REOs — but at the end of 2021 when the mortgage bailouts started to expire, foreclosures rose 67%.

Let’s take a look at some popular REO foreclosure sites — the first three are banks, the other three are auction sites that cater strongly to foreclosures.

Bank of America — they still show some properties but I think they’re putting a lot of their stuff on TBH.

Regions Bank — one benefit of dealing directly with the bank is that a lot of times, the price is better than the auction sites. If the bank happens to have a property in the area where you want to rehab, you might find great deals if there aren’t too many other competing investors.

Wells Fargo — I’ve been able to snag some REO deals from Wells Fargo but you have to be flexible on location so this might be a good option for wholesale flipping, so you make money without doing the rehab.

Hubzu — greater selection plus you can sign up for alerts.

ServiceLink Auction (Hudson and Marshall) — back in 2017 Fidelity National Financial acquired H&M and launched ServiceLink Auction. Since Fidelity is a title insurance company, there are benefits to buying their properties. — I’ve found some great flips here.

What To Do Next

Most people in the industry won’t tell you this, but one of the biggest secrets to successful flips is that you need to find the right opportunity. Don’t just grab something because it’s cheap. Come up with a set of criteria and let logic and data make your decisions. What does that mean?

Your next step is to use these sites to find viable flip rehabs — but most investors start flipping based on things like curb appeal or overall ‘cuteness’. Don’t fall for it, this is a numbers game. Identify a price per square foot that houses are selling for in the area you’re targeting. Cut that price in half and use that as your magical target acquisition. When you find a property that you can buy for that target number, buy it.

You have to move quickly on REOs because investors are scrambling to snatch them up. That means that if you don’t have all your spreadsheets and templates and formulas ready to go, you’ll miss a lot of great opportunities. Remember, you still need to do your due diligence and you should never buy a property (or even bid) unless you already know it’s a winner.

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