REO Properties: Investors Guide

REO properties were huge for investors in 2009 and they could be the next source of great deals for you in the coming years (depending on the market.

But you’ll need to know how to navigate the waters in this deal source; everything from, how to find these deals, how to negotiate them, and who to reach out to.

Let’s dive and start with what an REO property actually is:

What is an REO Property

An REO, or Real Estate Owned property, is a label used to describe a property that has been repossessed by a lender after a failed foreclosure auction. Essentially, when a property goes into foreclosure and no one buys it at the auction, it becomes the property of the bank or mortgage company. These properties are often seen as opportunities for real estate investors because they can sometimes be acquired below market value, as banks are usually eager to offload them from their books. However, diving into the REO market requires an understanding of how these properties work, what potential they hold, and the savvy to navigate the purchasing process.

Reasons for tapping into REO Properties

REO properties can be a goldmine for savvy investors, particularly when the market swells with these bank-owned assets, echoing the post-2009 era. When banks find themselves with an excess inventory of these properties, they’re motivated to sell, often at significant discounts, to alleviate the weight of these non-performing assets on their books. These deals can provide great deals for yourself to Brrrr, or to sell the contract for an assignment fee, or as a rental.

Here’s why you might want to consider REO properties:

– High Supply, Motivated Seller: In an REO-rich market, banks are the sellers, and they’re often eager to offload a large inventory. This urgency can translate into better deals for the buyer.

– No Emotional Bargaining: Unlike homeowners, banks have no emotional attachment to the properties. This means negotiations are purely financial and strategic, often leading to a more straightforward and potentially less complex transaction.

– Substantial Discounts: Banks are in the business of lending, not property management. To quickly clear REO properties off their books, they may offer them at considerable discounts, sometimes up to 50% off the perceived market value, depending on the property condition and market demand.

Navigating the REO terrain requires an understanding of these incentives and the ability to act swiftly and knowledgeably when opportunities arise.

Process of REO Properties

Understanding the process banks go through to sell an REO property is crucial for any investor, flipper, or wholesaler looking to tap into this market. It’s a journey that often begins at the unfortunate end of a homeowner’s ability to pay their mortgage, leading to foreclosure.

Here’s how it unfolds:

1. Foreclosure: When a homeowner defaults on their mortgage payments, the lender initiates a foreclosure proceeding to take possession of the property.

2. Auction: The lender attempts to recoup its losses by selling the property at a public auction. The starting bid typically includes the loan balance, accrued interest, and any associated fees.

3. REO Status: If the property fails to sell at auction, often due to the starting bid being higher than the property’s value, it becomes an REO.

4. Bank’s Inventory: The property is now part of the lender’s inventory. They handle the eviction process if necessary, secure the property, and may perform basic maintenance to prevent further depreciation.

5. Listing with an Agent: The lender usually lists the property with a real estate agent or broker who specializes in REO properties. This agent will then market the property to potential buyers.

6. Offer and Negotiation: Interested buyers submit offers through their agents. The bank’s REO department will review the offers, which may involve several rounds of negotiation.

7. Closing: Once an offer is accepted, the closing process is similar to a standard real estate transaction, though it may be more streamlined and faster, as banks are often motivated to sell quickly.

For investors, flipping an REO property can mean significant profits, and wholesalers can find opportunities to connect buyers with these often underpriced properties. Knowing the steps a bank takes to sell an REO can provide you with the insight needed to navigate these deals successfully.

Here’s a neat video that explain how to get REO properties:

How to find REO Properties

Finding REO properties can be a systematic process if you know where to look. Here’s a streamlined approach to uncovering these investment opportunities:

1. Bank and Lender Listings: Start with the source. Many banks and lending institutions list their REO properties directly on their websites. Make a list of banks in your area and regularly check their REO listings.

2. MLS: While not all REO properties are listed on the Multiple Listing Service (MLS), many are. You or your real estate agent can filter searches to include REO properties specifically.

3. Real Estate Agents: Some agents specialize in REO sales and have relationships with banks. Connecting with these agents can provide you with insider access to upcoming deals.

4. Asset Management Companies: Banks often outsource the management and sale of REO properties to asset management companies. Identify and reach out to these companies for potential listings.

5. Online Auctions: Websites like, Hubzu, or RealtyTrac host online auctions for REO properties. These platforms can be a source for finding deals, but be sure to do your due diligence before bidding.

6. County Records: Not all REO properties are actively advertised. Some can be found by searching foreclosure records at your local county office, revealing which properties have reverted to the bank’s ownership.

7. Networking: Your network is one of your most valuable resources. Connect with other investors, join real estate investment groups, and participate in forums. Sometimes the best leads come from word-of-mouth.

NOTE: The biggest source is having relationships with the banks. If you do, they’ll go straight to you.

By using these strategies and combining them with consistent research and networking, you can build a robust pipeline of REO property leads.

Getting to Foreclosure before banks

There’s another source, and that’s going off-market and getting to the sellers BEFORE the take the house.

If you’re a wholesaler, reverse wholesaler, virtual wholesaler, or even flipper you might as well go this route and get even bigger discounts.

Let’s dive into a mini guide on finding pre-foreclosure deals so you can beat out the bank!

Pull a list of Pre-foreclosures

A pre-foreclosure is a property in the process of being repossessed by the lender due to the homeowner’s inability to keep up with mortgage payments. The pre-foreclosure stage begins when the lender files a default notice on the property, which informs the property owner that the lender will pursue legal action if the debt is not paid. This phase allows homeowners a chance to either pay off the debt or sell the property before it goes into foreclosure.

Investors can capitalize on this period by pulling a list of pre-foreclosures to find potential deals. Here’s how:

– Use a Service Like Propstream: This platform provides detailed filters to identify properties in default. By pulling this list, you get access to homeowners who might be motivated to sell to avoid foreclosure. NOTE: see our review of Propstream here.

– Reach Out Proactively: Contact information from Propstream can help you reach out to these homeowners directly, offering solutions before the bank repossesses their homes.

By targeting pre-foreclosures, you’re positioning yourself at the front line of potential deals, engaging with homeowners who might be looking for an immediate and viable exit strategy.

Mailing your list

Mailing a list of pre-foreclosures is a strategic approach to reach homeowners who might be urgently looking to sell their property to avoid foreclosure. The key is to craft a message that resonates with their current situation and offers a clear solution.

Here’s how to do it:

1. Personalize Your Message: Address the homeowner by name to establish a personal connection. This shows respect and attention to detail.

2. Express Understanding and Offer Help: Acknowledge the challenging situation they may be facing and offer your services as a way to help them avoid the potential impact of a foreclosure.

3. Make a Clear Offer: Let them know you’re interested in buying their house and are prepared to make a fair and fast offer. Time is of the essence in pre-foreclosure situations.

4. Provide Contact Information: Make it easy for them to reach out to you. Include your phone number, email, and if possible, a website where they can learn more about your services.

5. Follow-Up: Don’t just send one letter. Plan a sequence of mailings. Persistence shows commitment and increases the chance of a response.

Sending a well-crafted, considerate letter to homeowners in pre-foreclosure can open the door to opportunities that benefit both the seller in distress and you, the investor, creating a win-win scenario.

Cold Call

Cold calling can be a direct and personal way to reach out to potential sellers in pre-foreclosure. It’s about striking the right balance between professionalism, empathy, and saying the right thing to a motivated seller. Here’s a script that can serve as a starting point for your calls:

**You:** “Hello [Seller’s Name], this is [Your Name] from [Your Company]. I hope this isn’t an inconvenient time. I’m reaching out to see if you received the letter we sent regarding a potential offer for your property. Have you had a chance to consider it?”

This script is designed to be non-invasive and respectful. It opens the door to a conversation without directly mentioning foreclosure, which can be a sensitive subject. The aim is to establish a connection and let the homeowner know you are there to provide options.

Following up

In the dance of deal-making, following up is your rhythm—essential and defining. When you’ve got leads responding to your letters or calls, the next vital step is not just to keep track, but to nurture these potential deals to fruition.

Enter the CRM, your digital rolodex on steroids.

Here’s what you need to do:

1. Catalogue Your Leads: Every response, whether warm, cold, or lukewarm, gets logged into your CRM. This is where details matter; note down the conversation, their interest level, and any personal tidbits you can refer back to later.

2. Set Up Reminders: Your CRM should remind you when to follow up. Maybe it’s in a week, maybe in a month, but the point is, you never miss a beat.

3. Personalize the Follow-Up: Use the information you’ve gathered to tailor your follow-up message. It shows you’re attentive and invested in their situation.

4. Offer Value Each Time: Don’t just call to call. Have a new piece of information, a new offer, or a new perspective that might help the lead move forward.

5. Be Patient and Persistent: Not every follow-up will result in a closed deal, but every follow-up increases your chances of finding the one that will.

Here’s a list of our top CRMs we recommend for investors:

  1. ReSimpli review
  2. Investor Fuse review
  3. ReiSift review

By systematically using a CRM to follow up with your leads, you’re not just hoping for a deal; you’re actively cultivating the ground for it to take root.


In conclusion, REO properties present a unique and potentially lucrative opportunity for investors, wholesalers, and real estate agents. These bank-owned properties can become the cornerstone of a successful investment strategy if approached with the right knowledge and tools.

To recap, here’s the essence of what we’ve covered:

– Understanding REO Properties: Knowing that these are properties reclaimed by banks after an unsuccessful foreclosure auction sets the stage for identifying real investment opportunities.

– Finding REO Deals: Utilizing resources like bank listings, MLS, real estate agents, and asset management companies can unearth potential REO properties.

– Negotiating with Banks: Crafting clean offers, showing proof of funds, and understanding the bank’s motivation are key in negotiating a favorable deal.

– Finding your own “REO” properties before the bank: going direct-to-seller and beating the banks to takin the home could mean even more substantial discounts and terms (where you can even negotiate seller finance deals or subject-to-transactions (something you can’t do with banks).

The journey to profiting from REO properties requires diligence, patience, and consistent action. With the right approach, investors can navigate through the complexities of REO deals and tap into a market that, while sometimes overlooked, can offer substantial rewards. So, gear up, dive in, and may your investments flourish in the fertile grounds of REO properties.

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