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Home Buyer's Recession Survival Guide - REO: Get Rich Quick Or Just Waste Time?

Updated on May 26, 2009

An REO is a Real Estate Owned property. What that basically means is that the house has been foreclosed, it has gone to auction and did not receive any acceptable bids. In this case, the house title is now free and clear in the name of the lender, bank or whoever foreclosed on it, and they likely want to get rid of it as quickly and painlessly as possible.

Not all REOs are placed on the market for a song. Some will not sell unless a relatively fair market price is paid. There are instances where an REO can be picked up at well under comparable pricing but those cases are fairly rare.

Lenders aren't stupid. They are not going to give away a property at below the currently fair market value unless they're running away from their own creditors to Patagonia to have plastic surgery and change their names, and their flight is leaving tomorrow morning. The chances of your running into a situation like this are roughly akin to being hit by lightning.

If you believe the TV infomercials, they will lead you to believe that foreclosures and REOs are just like picking thousand dollar bills out of trees. The reality is not that simple. First of all at a foreclosure auction there is a minimum bid. Houses don't just start at $1. The minimum bid is comprised of the outstanding loan amount, plus accrued interest, plus various legal, etc. fees. In 99.9% of the cases, the minimum bid is well above just what's owing on the house. And keep in mind that if the amount owing on the house was that little, chances are it wasn't going to be foreclosed anyway!

REOs are always sold as is. That means that you might have tenants you'll have to evict. You may also have to evict smaller tenants of the four legged and long tailed variety, as well as of the Blattella germanica variety and all their friends. It may have cosmetic or even structural damage. You would be amazed at what people do to houses when they know they are being evicted. Some houses have everything that could even be sold for 25 cents stripped out of them including the toilets. Some are even viciously vandalized beyond that, with concrete poured down pipes to block them, wiring purposely shorted to cause fires, attics and basements trip wired to cause accidents, and so many dirty tricks you could fill a book. You can never look at an REO on paper and make a determination as to whether or not it's a good deal. Only a qualified professional home inspector can do that.

Also keep in mind that if you purchase a foreclosed property at auction, you could face thousands of dollars in bidding and auction fees. You will also have a strictly limited time to scrape up the financing or you will be liable for a huge sum.

Don't fall into the same silly trap that so many foreclosure buyers have:

"Wow, this foreclosure house is for sale for just $50,000! It was worth $250,000 just a couple of years ago! We'll buy it, spend $50,000 to refurbish it back up to snuff and the market will soon go right back up so we can sell it and make $150,000 profit!"

There are many foreclosure owners who find that the price of their new property has actually dropped since they purchased it, let alone the cost of any renovations. Just because a property was once worth $250,000, that doesn't mean that it will be worth that much at any time in the foreseeable future!

Remember: Anyone can film a television infomercial featuring someone standing in front of a rented Bentley sipping champagne on a palm-lined beach. The difficult part is actually getting to be that person in the real world through buying REOs and foreclosures. Millionaires have definitely been made through this strategy, but they are very few and far between.

Read The Entire Survival Guide

Home Buyer's Recession Survival Guide - The Subprime Meltdown
Home Buyer's Recession Survival Guide - The Advantage Of Renting Over Buying
Home Buyer's Recession Survival Guide - Why Rent? Why Not?
Home Buyer's Recession Survival Guide - Five Common Mistakes House Buyers Make
Home Buyer's Recession Survival Guide - Get Your Home Sold Quickly & At Your Asking Price
Home Buyer's Recession Survival Guide - Improve Your Home's Value And Sell It For More!
Home Buyer's Recession Survival Guide - Learn The Value Of Curb Appeal
Home Buyer's Recession Survival Guide - Home Staging: Valid Selling Technique Or Fraud?
Home Buyer's Recession Survival Guide - Before You Go House Shopping
Home Buyer's Recession Survival Guide - The Home Condition Checklist
Home Buyer's Recession Survival Guide - Getting A Mortgage From Different Types Of Lenders
Home Buyer's Recession Survival Guide - What To Do After You're Turned Down
Home Buyer's Recession Survival Guide - New Initiatives To Help Get You Approved
Home Buyer's Recession Survival Guide - Isn't HUD An Old Paul Newman Movie?
Home Buyer's Recession Survival Guide - Jumbo Isn't As Huge As He Once Was
Home Buyer's Recession Survival Guide - FHA Q&A
Home Buyer's Recession Survival Guide - The FHA's Credit Requirements Vs. The Bank's
Home Buyer's Recession Survival Guide - Your Credit Score And Your Mortgage
Home Buyer's Recession Survival Guide - Credit Score Confusion
Home Buyer's Recession Survival Guide - Keeping That Credit Score Nice & High
Home Buyer's Recession Survival Guide - Minimize The Interest Payable
Home Buyer's Recession Survival Guide - What Is PMI & Why Do I Care?
Home Buyer's Recession Survival Guide - The LIBOR-COFI-COSI Alphabet Soup
Home Buyer's Recession Survival Guide - REO: Get Rich Quick Or Just Waste Time?
Home Buyer's Recession Survival Guide - Obtaining Flipping Money
Home Buyer's Recession Survival Guide - Consider The Additional Costs
Home Buyer's Recession Survival Guide - What Is Escrow?
Home Buyer's Recession Survival Guide - Tips To Avoid Foreclosure
Home Buyer's Recession Survival Guide - The Changing Value Of Your Mortgage Dollar
Home Buyer's Recession Survival Guide - How To Ride The Interest Rate Spikes
Home Buyer's Recession Survival Guide - Can't Get A Mortgage? What A PITI!
Home Buyer's Recession Survival Guide - Calculating Your Closing Costs
Home Buyer's Recession Survival Guide - Mortgage Broker or Mortgage Banker?
Home Buyer's Recession Survival Guide - The Magic Of A Down Payment
Home Buyer's Recession Survival Guide - A Refinance Checklist
Home Buyer's Recession Survival Guide - Refinancing With Bad Credit
Home Buyer's Recession Survival Guide - The Self-Employed Mortgage Maze
Home Buyer's Recession Survival Guide - VA Loans
Home Buyer's Recession Survival Guide - Offset & Reverse Mortgages
Home Buyer's Recession Survival Guide - The Reasons To Not Buy An Offshore Retirement House
Home Buyer's Recession Survival Guide - How To Pay Less Than $500 A Month
Home Buyer's Recession Survival Guide - Five Easy And Cheap Tips To Save Big $ On Energy

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