4 Considerations before buying a bank-owned home

October 16, 2019 0 comment

Bank-owned properties are properties that are taken into a bank’s inventory, after a foreclosure sale. Bank-owned property is acquired by a financial institution when a homeowner does not make their mortgage payments. These properties then sell at a discounted price, much lower than current home prices. A bank-owned property may also be referred to as real estate owned property and abbreviated as an REO property.[1]

The bank’s acquired properties/ acquired assets list is where most beginner real estate investors start their property scouting foray.  It’s easy, and organized. Investors and budding property owners would be able to see the location, price range, and general details of a property and create their shortlists from there. They don’t have to scour listings, travel for site visits, or make multiple phone calls. With most of the legwork done, investors are looking at bank-owned properties as a good starting point in real estate investing. However, before budding real estate investors go traipsing over to the nearest bank asking for a list of bank-owned properties, consider these four points:

Is the property a diamond in the rough or is it fools gold?

We’ve all seen some of the houses flipping shows on reality tv: Flip or Flop, Flipping Out, or Masters of Flip. They’re all based around the concept, the producers take a dilapidated house, market it as a “diamond in the rough”, call in the big guns to do some major renovation to make the house liveable once again, and sell it for a profit (or have the original owners live in it, in some shows). This is the same concept followed by real estate investors. They envision a hidden gem that they would be able to flip for a profit. Be careful as this is not always the case. Some properties turn out to be a good deal and some turn out to be more trouble than it is worth. Real estate investors should ask themselves “is the property a good deal?”

Most bank-owned homes are sold as-is, and the banks have zero intention to fix up the properties that they repossess. With a bit of careful investigation and due diligence, a real estate investor could identify the property’s shortcomings and be able to suggest a discount or negotiate a better deal.

Real estate investors should consider the repairs and updates the property needs

Banks would rather sell the homes at a reasonably discounted price rather than hold on to them for an indefinite amount of time. Most of these bank-owned properties are already lived in, have been vacant for some time, and would require some sort of repair or renovation. It would be a good tactical move for real estate investors to create an inventory of the repairs and updates that are needed to rehabilitate the property. Create a comprehensive buyers packet that details the financing options made available to you with multiple lenders, an appraisal from an objective third party (to give real estate investor an objective value to compare with the bank’s published price), and the amount of funds needed to fix up the bank-owned home. This will show the banks that the real estate investor is serious about purchasing the property. This puts them at an advantage over the competition and would give them enough leverage to negotiate a good deal.

Is the property located in an ideal area?

As with any other investment, location is always important. Real estate investors should not only look at where the property is located but what amenities are available around it. What is the neighborhood like? Is it close to public transportation options? Are there convenience stores, groceries, parks, schools, restaurants, recreation centers, or business centers nearby? Is it one dilapidated house out of a street full of dilapidated houses? Is the neighborhood safe? Is it being developed? A real estate investor’s answer to these questions would help them decide if the bank-owned property is a good purchase or not.

 Are there any extra issues to manage or watch out for?

Real estate investors would have to contend with a slew of issues. One of which would be occupants who refuse to leave their homes and are still living in the property. This would mean that real estate investors would have to work around showing schedules. As mentioned earlier, bank-owned houses are already lived in. Real estate investors looking to buy would have to buy the property as-is. If the property is auctioned off real estate investors would have to pay for it in full if they decide to buy it. Another issue is competition. Since bank-owned properties provide real estate investors an organized working list of properties to choose from, budding investors would find a lot of competition for “prime properties”. Real estate investors have to make sure they are prepared to address these issues.

Buying property from a bank is not the same as buying property from a traditional seller. For one the process of buying bank-owned property takes longer. Most banks won’t even consider an offer unless the real estate investors submit a mortgage pre-approval letter from the bank’s chosen lender. That would set back the process by at least a few weeks to begin with. It pays to have someone who knows how to navigate the nuances of banked-owned property purchases.

If you are a budding real estate investor considering buying a bank-owned home, you might want to enlist the help of a property management company who knows how to navigate the bank-owned process. This way, you could gain useful insights and informed advice from industry experts on whether the bank-owned property is a good deal. Working hand in hand with experienced agents from a reputable property management company can give you an advantage over the competition and help put your bid for the bank-owned property forward. Contact us and get valuable advice on how to buy bank-owned properties and how to spot good deals. Call us at  425-658-7471 today.


[1] Banked-Owned Properties, Investopedia, 2018

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