REOs: Risks & Rewards

REOs (Real Estate Owned) are foreclosed properties owned by banks. The majority of these properties are located in inner city and rural settings and many are in need of some repair. The banks sell these properties in bulk at a fraction of their real value in order to quickly recoup some of their losses. Omega Wealth Navigators, LLC purchases these properties in bulk from the banks and resells them at wholesale prices to qualified investors.

When you purchase a block of REO properties (usually 20 properties) from us through the bank, you do not evaluate or preview any single property. In effect, you are purchasing the properties blind.

REO Risks

• Investors must be willing to purchase REO properties without title insurance. The reality is that there is rarely an issue with title – but the banks do not offer title insurance when selling their bulk properties.
• Properties may have water bills or property tax liens against them and these facts can’t be known beforehand. These amounts can be significant.
• Properties may have code enforcement actions against them – city or county violations that may carry a fine and/or require action – such as removing garbage from the property.
• The building may have been burned down or no longer exist, leaving you with just the land.
• The properties may have fallen victim to vandalism or have squatters living in them.
• The properties may be located all across the country, which can present geographic challenges. You may not know the local officials, the local markets, or the local service people.
• Reselling these properties in the retail marketplace may mean offering financing and servicing loans. You need to be able to respond to a large volume of inquires and provide customer service to your potential buyers. You can hire third parties to provide some or all of these services if you wish.
• Average default rates can run between 10-30%. Some of this risk can be mitigated by correctly qualifying your retail purchasers.

REO Rewards

• Purchasing properties for a fraction of their real value.
• About 10% of your properties are likely to be sold for cash – you don’t have to wait for your profit.The typical financed retail sale allows you to recover your investment within 2 years.
• A stream of mortgage payments over 30 years can add significantly to your cash flow.    
• By buying in bulk, you offset your risk. Properties in your 20-property package cost between $9,000-$15,000 each, with the average being $11,000. This means that, individually, they do not represent a significant financial investment. If one is burned down or damaged beyond repair, you can donate, sell, or hold the land without great expense or loss.
• The current market is creating a great deal more inventory in foreclosed properties and many of them are in good condition.

Illustration
One property in your package may cost $9,000. You might spend another $1,000 to get it ready to sell, making your total investment $10,000. You sell the property for $31,500 at 11% interest, taking a down payment of $500 and receiving monthly payments of $300 for 30 years. Your costs are returned to you in 2 years. Over the life of the loan you receive $108,000 dollars. This is a $102,000 gross profit. If you own 20 of these properties, your passive, monthly income from these investments would be $6,000!  This is just one exit strategy you can implement.