While the distressed property market is smaller as a percentage of available property it can still be a great way to invest. But what do distressed properties really mean to you as an investor?
REO (aka) Bank Owned:
1. Condition: Many REO [real estate owned by a bank] properties are in pretty tough shape. They almost always have the water and heat turned off so do not expect a warm fuzzy feeling when looking at an REO. These houses might also have fixtures and appliances missing so factor that in to what you are willing to spend.
2. Disclosure: Banks are exempt from giving the buyer a property disclosure. Make sure you get a thorough inspection of the property.
3. Shorter inspections and higher costs: To inspect a home you need the utilities on and that cost is passed on to the buyer with most REOs.
4. Financing: Some banks offer financing deals on REOs but many don’t treat these any differently. If you are using a loan make sure there are not broken windows or holes in walls – this will cause problems with an appraisal unless you are getting a rehab loan.
5. Look all properties: Just because it says REO does not mean it is the best deal – look at all available properties before making a decision.
A short sale is where a lender agrees to let a seller sell their home for less than what is owed on the property. That is the basic idea but the reality is more complicated and the process often times takes quite a bit longer than a traditional 30 day close. Expect 30-120 days for a response from the lender and accept that many short sales end up in foreclosure even if they receive offers. Patience is the name of the game. Many banks also try to put restrictions on what you can do with the property once you own it, so make sure to carefully review all contracts.
To download and view the entire 2014 Portland Real Estate Market Report, click here.