Hey investor friend, have you ever considered real estate owned (REO) properties?
Do you know what an REO really is?
Whelp, we’re here to spill all the deets, because…
To understand how to buy REO properties with no money, you’ll first need to know what these properties are and why we think you might want to consider giving them a go in your REI business.
So, read on as we share that helpful info about what they are and how to buy REO properties with no money.
Hop to it!
What Is an REO?
So, if a homeowner fails to make their monthly mortgage payments, their lender (usually a bank) can choose to foreclose on the property.
The lender will try to auction off the foreclosed property at a county auction.
But! If the property doesn’t sell at auction… the foreclosure property then becomes an REO, which gives me and you the opportunity to purchase the property below market value.
It’s a win-win-win because you’re solving the bank’s problem, the homeowner’s problem, and you’ll make a nice profit. Happy day!
What Is an Assumable Loan?
Alrighty, an assumable loan allows you to buy a home by taking control of the seller’s mortgage. While this option is available on foreclosure properties, you can only take advantage of it before it goes to auction, which means that it doesn’t apply to REO properties.
Homeowners who are falling behind on their payments may opt to transfer their home to someone else to avoid a foreclosure showing up on their credit report.
Now, of course, buying a home with this type of loan means that you should gain access to relatively low interest rates. If the seller purchased the home 20 years ago, you’ll retain the interest rate that’s currently attached to their mortgage. Nice.
Before looking into assumable loans, you should know that not every home loan is assumable. While most VA, USDA, and FHA loans are assumable, the majority of conventional loans aren’t. Even if the loan is assumable, the lender must first give their approval.
And again, it’s not for REOs, it’s for foreclosures that haven’t yet gone to auction.
Why are we talking about here then if it’s not for REOs?
Well, when you’re armed with ALL the details related to foreclosures and REOs, the better you’re able to handle various types of deals and properties.
What Is the REO Process?
Ok, before learning how to buy REO properties with no money, it’s important to look at the REO process and what it entails. As we touched upon previously, a property becomes an REO if it isn’t sold at a foreclosure auction.
In most foreclosure auctions, the lender makes the first bid and waits for other third parties — hello, investors — to bid.
Thing is, many foreclosure auctions end with just the lender making a bid and no one else bidding, which is when the property gains REO status.
If the foreclosure property doesn’t sell auction, the lender will prepare the REO property for sale, which could involve getting rid of outstanding liens or evicting occupants.
It’s at this point that your knowledge of how to buy REO properties with no money would prove useful.
3 Ways to Buy REO Properties with No Money
There are 3 techniques you can use to buy REO properties with no money. Once the property goes through the foreclosure process, becoming an REO for sale…
#1. You can purchase it directly from the lender with a loan. While money is needed for a down payment, you wouldn’t likely pay cash for the property itself.
#2. You can also buy the property by obtaining private money from your friends, family members, or other private money lender.
#3. Consider buying the property by partnering with other investors. They can provide most or all of the capital needed for the purchase, which allows you to buy REO properties with no money. And, of course, y’all would split the profits.
5 Steps to Buy REO Properties with No Money
Now the good stuff…
When you’re learning how to buy REO properties with no money, keep in mind that a bank doesn’t want a foreclosure property to remain on their books. While it won’t accept an extremely low offer for the property, it wants to sell as quickly as possible.
So, you’d use your ninja negotiating skills to try and get a great deal.
Take a looksie at these 5 simple steps on how to buy REO properties with no money:
- Obtain pre-approval for financing or get cash from friends. Consider using this cash as your down payment for a loan.
- Think about hiring a foreclosure/REO agent to negotiate with the lender on your behalf.
- Make a fair offer to the lender, which should be below market value. If the bank accepts, you can sign a contract and obtain ownership.
- Schedule an inspection to make sure the home’s in decent/good shape.
- Conduct a title search to ensure there aren’t any outstanding liens on the property.
See, not so scary when it’s laid out in those relatively simple, easy-to-follow steps, right?!
Final Thoughts About How to Buy REO Properties with No Money
Ok, not only have you learned at a high level how to buy REO properties with no money, but we also touched on what REO properties are and what steps this process involves.
REO properties offer many advantages that aren’t possible with regular, non-foreclosure deals.
And best of all, it’s really a triple win, since the homeowner gets out of a tough situation, the bank gets the REO property off its books, and you collect a sweet paycheck. All good!
