It’s a common misconception for new investors that bank owned properties (REO as they are referred to in the business) are the cheapest and easiest way to find distressed properties.\u00a0 The truth is quite the opposite.\u00a0 Ten years ago I took a one day class on real estate foreclosures because I was certain that banks were giving houses away to investors like myself who had the right connections.\u00a0 I completed the course and devised a plan to build relationships with REO brokers who would give me first dibs on any of these deals.\u00a0 My girlfriend at the time even went so far as to get licensed as a real estate agent so she could work at the premier REO brokerage on Long Island.\u00a0 We would have the inside track on all the deals and she would get commission when I bought and when I sold.\u00a0 Great plan right?\u00a0 In theory yes, but in reality it was anything but.<\/p>\n
So why didn’t this plan work?\u00a0 A number of reasons.\u00a0 First, by the time a property becomes bank owned the bank has already taken a significant loss and is looking to minimize their downside.\u00a0 Selling properties to investors at a discount only hurts them further.\u00a0 Second, most banks require properties be listed on the MLS, auction sites, and more to give them maximum exposure.\u00a0 Many banks go as far as to require a property to be publicly marketed for a minimum number of days before any offer can be accepted.\u00a0 Lastly, REO brokers aren’t willing to risk a bank relationship that took them years to cultivate.\u00a0 So the odds of them steering a deal in your direction is slim to none and slim just ran away.\u00a0 The truth is that bank owned properties are usually the most overpriced properties an investor can buy.<\/p>\n