To make real estate investing work for you, you must always take into account the economic conditions that dictate what type of real estate investment is the best option at any given time. Do you know your basics? What are Bank Owned REO Properties or Non-Performing Loans? What is the difference between the two? It’s quite simple actually.
Both bad loans and bank-owned REO properties are the unfortunate children of the economic downturn. As the economic crisis progresses, so does the loss of homes, as struggling homeowners can’t keep up with loans and mortgages.
An adaptation of the well-known nursery rhyme “First comes a bad loan and then a foreclosure” serves to illustrate the progression of distressed property management and the main difference between the two concepts. Although they undoubtedly traveled the same path, the difference is in how far each of them is.
Let’s say a homeowner can no longer afford to pay a loan. The first month the bank lets it go. The second month, they send the letter. The third falls the deck: the property has been declared a non-performing loan. For all intents and purposes, a delinquent home loan is a property loan that has defaulted or is in danger of defaulting when the owner can no longer make the payments. With a few exceptions, three months is all a homeowner has to turn in the estate before their loan is declared delinquent. And given the current economic conditions, bad loans are springing up like mushrooms after the rain. Finance corporations that specialize in non-performing loans will assist with purchasing a loan that is best suited to individual financial portfolios. By liquidating the assets involved, they can realistically provide good value. But not a 50% discount on the price. Not with complementary repairs to the property. Not in bulk. And certainly not without tons of paperwork and fees. None of the things that Banks Owned REO can and will do to advance the sale.
Bank-owned REO property, on the other hand, is the next step on the distressed property timeline. No real estate loan payment will sooner or later result in a “walking the plank,” in other words, the dreaded foreclosure. Foreclosure unceremoniously throws the distressed property onto the auction table. Properties that cannot be auctioned end up as REO properties owned by the bank. With the current economy, banks have a veritable tsunami of real estate coming their way. Struggling wildly to get at least some money back and liquidate the books, banks are selling bank-owned REO properties like tomatoes at the local market, at a discount, liens and other expenses on the house removed.
While both are viable options for a real estate investor, everyone wants to buy where the offer is best. And in bank owned, affordable, bulk, plentiful and flexible REO real estate is much better than a sometimes expensive and bombastic non-performing loan.
And who wouldn’t opt for an offer that provides maximum benefit with minimum investment, fast.