If you are entering the real estate market, then you will want to know about investment properties that are real estate owned. For beginners, you this involves learning about what constitutes this type of property and the procedure for buying it.

Real estate owned or REO properties are owned by the mortgage company following a foreclosure auction where the property did not sell. Many foreclosure auctions are unsuccessful due to large liens and once unsold reverts back to the bank.

1. Get an overview of REO properties. As a beginner, you will want to know the process of how a property gets the REO distinction.

2. Find information on buying real estate owned properties. Look for tips on buying REO property below market value.

3. Learn about any conditions of a real estate owned sale. If you are looking to buy property for your company, there are certain inclusions of a REO sale that you should be wary of.

Action Steps
The best contacts and resources to help you get it done

Discover the basics of real estate owned properties

The foreclosure process is a complex route that may seem difficult to grasp at first. Beginners will need to know the steps of foreclosure and how a property becomes REO. You will want to also know your rights as a potential buyer of a REO property.

I recommend: RealEstate ABC has a very helpful and easy to understand guide on bank owned properties. It outlines the way that a REO house differs from a foreclosed property. All Foreclosure Information walks you through the steps from pre-foreclosure to REO.

Learn how to buy a real estate owned property

Before a company makes an offer, they will need to know the procedure since it's different than non-REO properties. Offers will need to be submitted through a listing agent and reviewed by the bank.

I recommend: Park Realtors provides a buying tips page on REO properties and gives advice on what you should do when you are ready to make an offer. Allow RealtyTrac to walk you through buying bank owned properties and the advantages of making this type of purchase.

Get tips on real estate owned purchasing

You will want to know about any conditions that you should be cautious of prior to buying a REO property. Also, look into ways that you can simplify the buying process when interested in a building or house that has gone through the foreclosure process.

I recommend: The Real Estate Windfall blog has several helpful articles on buying REO properties and when is the best time to invest in REO houses and buildings. Repo 4 Less has an article that provides 8 simple tips you should use when buying REO properties.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  In most cases, you are buying a real estate owned property in its current condition. Although it must go through inspection, the majority of banks will sell the property as is.

Real estate owned is commonly referred to as an REO or bank owned property in the foreclosure market. After an unsuccessful auction, the lender will try to recoup some of its losses by trying sell the property either through another auction or through a realtor. To make the listing more enticing, the bank will generally remove some of the liens and other expenses on the property.

Generally speaking, real estate owned properties are in poor shape and, with some exceptions, are sold "as is." These make them ideal for real estate investors, because the low price can more than compensate for the condition of the property. Consider the following suggestions when forming your real estate owned list of properties:

1. Review real estate owned listings in your area.

2. Hire a home inspector with an REO background to help identify renovation and repair costs.

3. Find a real estate owned provider or broker to assist you with your purchase.

Action Steps
The best contacts and resources to help you get it done

Find real estate owned listings in your area

First and foremost it is important to take a cursory look at the REO listings in the area you are considering. This allows you to review preliminary real estate owned information to rule out some properties and put others on your short list, based on your knowledge of the area.

I recommend: ForeclosureFreeSearch allows you to search for REOs nationwide according to zip code or state. Countrywide Bank allows you to see the properties it has for sale. Simply provide your city and state and a real estate owned list will be generated.

Hire a real estate owned home inspector to help calculate repair and renovation costs

Do your homework before making an offer by calculating the costs of repairs and renovation, including the time to complete them. A home inspector with an REO background can help identify what repairs need to take place. A real estate owned property is only a bargain if you don't end up sinking too much cash into it.

I recommend: The team at Snow Enterprises claims familiarity with the complete REO process. REO Shadow Inspection Services performs occupancy verification, walk-through inspections, drive-by Broker Price Opinion (BPO) photo inspections and interior BPO photo inspections.

Find a real estate owned provider or broker to assist you with your purchase

An REO transaction can be much more complicated than a traditional home sale. Consider hiring an REO provider or broker to help guide you through the process. Their expertise can help you avoid pitfalls and ultimately help you negotiate the best deal possible.

I recommend: REO Agents allows you to search for agents according to zip code. Primec Real Estate Services lets you search by area and also specify what experience you require in an REO agent.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  If you are a licensed real estate agent and are interested in entering the business of selling and listing real estate owned properties, you are in demand. There are many real estate firms looking to employ agents interested in this growing, yet challenging, field.

Real estate owned (REO) properties are those owned by the mortgage company after a foreclosure auction that did not result in a sale. REO properties are common as a result of their accompanying large amounts of money owed to the bank that keep shoppers looking for a bargain during foreclosure auctions. It is important to have a working knowledge of real estate owned key terms prior to investing in real estate owned properties. A lack of understanding can wind up costing you big bucks.

Action Steps
The best contacts and resources to help you get it done

Property lien

A lien on the property can be obtained by the property owner to ensure ownership rights in case payments are not made. In most cases the bank or mortgage company is the property lien holder. During an REO transaction, all price and closing negotiations will be held with the lien holder, or the bank.

I recommend: The 'Lectric Law Library provides the legal definition of a lien and explains how the definition applies to property.

Title insurance

Title insurance protects you against any claims or legal fees that may arise as a result of actions on the part of a property's previous owners. Examples include a claim to your property's land or a forged signature on a previous title that has been brought to light years later. REO purchases generally come with a title insurance policy as well as the chance to investigate a property's history.

I recommend: Jack Guttentag's site entitled "The Mortgage Professor" answers many common title insurance questions.

As is condition

Most banks offer REO properties for sale in 'as is' condition, which means what you see is what you get. Purchasing 'as is' can be risky, so REO buyers are advised to pay for inspections out of pocket and try to negotiate repairs with the bank.

I recommend: ThinkGlink's article "What Does Buying a Home in 'As Is' Condition Really Mean?" explains the concept of "as is."

Section 1 pest certification

Most pest reports classify conditions as Section 1 or Section 2 items. A Section 1 certification means an inspector found no live insects causing damage to your property. Most banks will comply with paying for a Section 1 pest certification, but only if you ask for it and include it as part of your negotiations.

I recommend: The section dealing with pest certification in Red Oak Realty's JustSellMyHouse article applies to REO transactions.

Inspection contingency period

It is highly recommended that any REO offer you make include an inspection contingency period, which is essentially a pre-determined amount of time you can use to rescind your offer if any inspections turn up a deal-breaker item for you.

I recommend: This News & Record and Landmark Communications article entitled "Homebuying 101: Market still holds opportunity," explains the REO purchasing process, including the importance of negotiating a contingency period for inspections to reveal any problems.

Property disclosure statement

All sellers are required by state law to disclose any known defects to a buyer regardless of the type of property sales. This is even true when a property is an REO and/or is sold in 'as is' condition.

I recommend: The Arizona Association of Realtors explains the role of disclosure statements in an REO sale in its "REO Disclosure Obligations" section.