Foreclosure Investing: REO’s vs. Short Sales

REO’s (Real Estate Owned)

Foreclosure investing can be a profitable business venture.  One question that I hear a lot is: Should I buy REO’s or Short Sales? The answer really depends on your exit strategy and funding.  Both have some advantages. Considering the fact that they are a huge liability from the bank’s point of view, REOs are usually sold at prices way below the market price.

Another major advantage is that properties owned by banks are usually clear so there are no liens recorded against that property.  REO properties are vacant since the banks have already foreclosed the previous owner – this saves you time and money as they are ready to close immediately.  The difficult part is creating the relationship with the Realtor who has them listed.

Short Sales

Another popular foreclosure investing strategy that is slowly losing popularity is that of short sales. The huge discounts offered in this type of transaction are its biggest attraction. However, the downside to short sale investing is how long it takes for the lenders to accept the offer.  If you are flipping the house you may lose your buyer because they grow impatient.

How does a short sale work? The seller and his lender accept a discounted payment to release the mortgage before the foreclosure auction. When lenders do agree to discounted payoffs, they expect you to close within 30 days. If you have the time to wait short sales can be good, but the recent trend I have been seeing in foreclosure investingis that most real estate investors are looking more into REO’s since they are much simpler.