Challenges of Buying Bank REO Investment Properties
Published on: Friday, December 18th, 2015
I was driving down the road the other day when I heard an advertisement that said, “Banks have hundreds of foreclosure properties, and they are very motivated to sell, and will take pennies on the dollar. Often times they will even finance them for little to no money down.” Sounds great, doesn’t it?
Chances are you’ve probably heard something similar and thought to yourself, “If it’s this easy, why doesn’t everyone buy properties this way?”
Now, I’m not here to tell you that you can’t get all of these things when buying bank real estate owned (REO) investment properties. Sometimes you can find a bank that will also finance the REO and is motivated. However, just because they are motivated or will finance it doesn’t mean it will be easy. While you can find great deals buying REOs, it does often times come with a price. REOs can be very challenging to purchase even when the bank is motivated, and buying bank owned REOs is not for the faint of heart.
Here are some of the biggest challenges to buying bank owned investment properties:
Lack of historical financial information – When you buy bank owned REO investment properties, often times there are very few financial statements to review. The financial picture can be a little murky. Let me explain: Most of the time when a bank takes over an investment property it’s because the property is not performing well. When they foreclose on the property, the owner doesn’t necessarily turn over all of their historical financial statements. Therefore, the bank may not have the financials to provide to you from when the previous owner operated the property.
If they have records, often times they are incomplete. Chances are a new management company has been hired. They will provide you with the current operations, but can only provide you information from when they took over the property. It’s normal to base your offer on only a few months of operating history. This lack of historical financial information makes it imperative for you to understand and be able to do your own evaluation of the property to make an informed investment decision.
Contract negotiations can be difficult and costly