Real Estate Investing Blog - DiscountedProperties.com

Bank-owned homes, also known as real-estate-owned or REO properties, are homes which are owned by banks as a result of the foreclosure process. With the glum state of the nation’s real estate market, there are certainly plenty of opportunities for both investors and homeowners seeking REO properties.

Because most lenders have far too many of these REO properties on their books, they are anxious to sell them, often for below fair market value. Bank owned homes could be a prime opportunity for both investors and homeowners, so it is up to you to educate yourself on the many facets of REO properties!

What is the Difference between REO Properties and Foreclosures?

REO properties are properties that are returned to the lender if a foreclosure auction is unsuccessful. If the property does not sell for what is owed to the lender at the foreclosure auction, the property is then returned to the bank, where it becomes a bank-owned property.
A lender will seek to sell the bank owned property to recover their expenses after it is returned to them, including the unpaid loan amount. The lender will also clear the title and perform any necessary repairs before selling the home.

Are Bank-Owned Homes a Good Investment?

Many buyers assume that REO properties are great values, and therefore get caught up in a bidding war and end up paying too much. Take into consideration the condition of the home and the home values of the neighborhood before bidding on bank-owned properties.
How do you Purchase REO Properties?

Bank-owned properties are sold in a similar manner as traditional homes, except that you are making an offer to a bank, not a home seller. Once again, keep in mind that you won’t usually get a “steal” when it comes to REO properties, as the bank is looking to recoup its expenses and the home’s unpaid loan amount.

Many banks have REO departments that handle bank-owned homes. Once you have submitted an offer to the bank, they will likely submit a counter offer. Your final offer will likely be reviewed and approved by several members of the REO department.

Can I Negotiate Home Repairs with the Lender?

Most lenders look to sell bank-owned homes “as-is.” In other words, you will likely have very little room to negotiate repair costs with the lender. However, most lenders will allow you to have inspections on REO properties so you know what repair costs you may face.

It is therefore important to stipulate in the offer that you have the option of cancelling the contract if you find extensive repair costs that the bank won’t cover.

Bank owned homes can be an excellent investment, especially if you purchase one that does not require extensive repairs. However, make sure you analyze bank owned homes as you would any other property – with rationality and practicality.

In today’s economy, many real estate investors have found that there is lucrative money to be made on government tax foreclosure properties.

Government tax foreclosure properties are essentially properties that have a tax lien against them. Tax liens, which take priority over any other types of liens, are usually a result of a homeowner not paying his or her property taxes. When this happens, a lien is levied by the county, and the tax foreclosure properties are sold in an effort to collect the taxes owed.

How Do Investors Make Money on Government Tax Foreclosures?

Frequently, the government will sell these government tax foreclosures to investors, who are essentially looking to buy the tax lien certificate from the county.

In other words, if you purchase liens on tax foreclosure properties, you are essentially paying for the lien and collecting the state-mandated interest rate on the amount for which you originally purchase the lien. Depending on the state, the state mandated tax can be anywhere from 8 to 50 percent on tax foreclosure properties! This means that you can get a tremendous bargain on a real estate property, or you enjoy collecting the taxes and interest rate on government tax foreclosures.

The Benefits of Purchasing Tax Lien Certificates for Tax Foreclosure Properties

The best part of this situation is that tax liens on government tax foreclosures are one of the safest investments because you either (a) collect the money for the lien, plus the state-mandated interest charges or (b) take the property. In other words, government tax foreclosures create a win-win situation. You either collect the money or sell the property – either way, you make out profitably on the deal.
Because counties rely on property taxes for the majority of their revenue, they are happy to sell the liens to investors and get out from underneath the properties, of which they have no interest, other than to collect the owed taxes.

Counties often sell the tax liens from tax foreclosure properties because it may take months for the property owner to finally pay on the lien – which often never happens. On the other hand, if an investor purchases the liens for their government tax foreclosures, then they essentially collect their taxes and pass the liens onto someone else.

The liens on government tax foreclosures give homeowners a predetermined amount of time to pay the taxes. During that time, interest accrues. If the taxes are not paid during the predetermined amount of time, then the homeowners lose their properties. The time during which the county has given the homeowners of the tax foreclosure properties to pay their taxes is the time that you, the investor, can make money from the accrued interest.

Because of the downturn in the economy, government tax foreclosures have made a resurgence, which therefore means that many investors can stand to make a great return.

For many homeowners facing foreclosure, a short sale may be a viable way to stop foreclosure. To understand the premise of a short sale, it is important to first analyze the circumstances under which so many homeowners essentially owe more on their mortgages than what their homes are worth.

Why Homeowners are Underwater in Their Mortgages
During the real estate boom a few years ago, home values across most of the country skyrocketed. Many home buyers purchased homes during this time, often with adjustable rate mortgages. Most homeowners were under the assumption that once the adjustable rate mortgage adjusted, they could refinance or sell the home for more than they paid.

Unfortunately, the mortgage bubble burst and so did home values. Homeowners looking to refinance or sell their homes then found themselves in a position where they owed more on their home than what it was worth. They were, essentially, “upside down” or underwater in their mortgage.

This left homeowners with adjustable rate mortgages that they couldn’t afford and who simply had no way out. With so many homeowners facing foreclosure, and so many lenders forced to begin the foreclosure process, many homeowners looked to selling their homes via short sales to stop foreclosure.

How a Short Sale Works

A short sale occurs when homeowners sell their homes for less than what they owe in their mortgage in an effort to stop foreclosure. Short sales, which must be approved by the lender, are a way for the lender to avoid the costly process of foreclosure. A short sale is also a way for homeowners to avoid a hit on their credit that a foreclosure would create.

Although the lender essentially loses money on a short sale, they often agree to this type of sale to stop foreclosure, which has a lengthy and costly process. There are some important facts you should know about using a short sale to stop foreclosure.

* To sell your home via a short sale, you must convince your lender that it is in their best interest to stop foreclosure and sell the home now, instead of going through the foreclosure process.

* You may be able to refinance your current loan to avoid a short sale and stop foreclosure.

* The difference between the money you receive for your home in a short sale and the money still owed to the lender (in other words, any amount of debt that is forgiven by the lender) must be taxed as income by the Internal Revenue Service.

* Short sales are most commonly seen during buyer’s markets because of the lack of competition and lower home prices.

* Often times the lender will agree to a short sale only if the homeowner signs a promissory note to pay the difference between the original loan and the sales price of the home from the short sale.

Using the short sale strategy has become a very widespread phenomenon with homeowners across the country who want to stop foreclosure – and protect their credit scores.

The mantra for rehabbing houses in today’s tough housing market may be “buy and hold.”  In other words, it may benefit you to buy a home at a good price and hold onto the property until the market shows signs of rebounding.

The bottom line is that there is money to be made rehabbing houses in today’s real estate market if you follow the rule of “buy low and sell high.”  With that said, home rehabbing, even in the glum housing market, is possible, and can even be quite lucrative, if you follow certain rules:

* Buy the “right” house at the “right” price. Understand that buying the “right” house at the “right”   price always involves conducting research and spending only what the market can bear to fix it up and get it back on the market. In other words, the amount of money you spent rehabbing houses has nothing to do with how you can realistically price the homes.  Focus on fixing up areas that have the highest cost-benefit ratio.

* Consider all of the costs of home rehabbing, including the buying, repairing, carrying, holding and selling costs. Forgetting to include one of these factors in your home rehabbing project could cost you dramatically, especially in today’s tough housing market.

* Find a realtor who specializes in foreclosures. The right realtor can be your key contact point when searching for rehabbing houses.

* Focus on one niche area. Make it your mission to become educated on one, particular area so that you can scout out the best property for your home rehabbing project. Researching a particular area can help you better understand the local real estate market, the average costs of homes in the area, and the real estate values and trends.  In home rehabbing, it always pays to be your area’s specialist.

* Look for the “easy” fixes. Many home rehabbing experts focus on the homes that need only cosmetic work, instead of the homes that need gutted and rebuilt, from the inside out. This may be the best first step when rehabbing houses in today’s shaky housing market, as it will eliminate the need to make a large investment into any one property.

* Keep your finances healthy. With financing options tight due to the current credit crisis, it is vital to maintain a sparkling credit score so that you can get the best financing possible for your home rehabbing projects. In other words, don’t lose your precious profit margin from rehabbing houses by paying more in interest fees and charges!

* It may make more sense to live in the home you are rehabbing, for many reasons. First, it will eliminate the time pressure to get the house sold in a pre-determined amount of time. Secondly, it will allow you to wait for the right moment to sell the house, instead of selling it while the market is still in a slump.  In addition, it will save you from all of the holding costs associated with rehabbing houses.  Lastly, should you live in the home rehabbing project for at least two years, then you can sell the home at a profit – and not have to pay capital gains taxes!

Savvy home rehabbing experts can make money in any market.  In a shaky real estate market, however, you simply need to ensure that you are making smart, practical, and cost-effective decisions in rehabbing houses for a profit.

There are many ways to stop foreclosure, and by learning about the strategies you can implement to keep your home, you can avoid becoming yet another victim of a home foreclosure process.

Throughout the foreclosure process, it is important to remember that your lender is not your enemy! In fact, the vast majority of lenders want to stop foreclosure as much as you do; the costs for foreclosure from a bank’s perspective are very high, which does not bode well for strengthening their bottom line.  Keep the lines of communication open and explore all of your possibilities with your lender to stop foreclosure.

1. Educate yourself on the foreclosure laws in your state. Remember: foreclosure process laws range widely from state to state, and it is important to understand the laws so that you can best protect your home from the foreclosure process.  Some states have expedited foreclosure processes that may leave you homeless in 30 days, while others outline a foreclosure process that could take up to one year to complete.

2. Contact your lender as soon as you experience trouble. Chances are that you and your lender can work out an agreement to stop foreclosure on your home, especially with the stimulus packages that have been passed by Obama’s administration.  However, if you wait until you are in over your head, then your options to stop foreclosure will likely be very limited.

3. Never, ever miss a mortgage payment! Missing a mortgage payment starts a dangerous snowball effect that is difficult – if not impossible – from which to recover.  Do everything in your power to make your mortgage payments while you work with your lender so that your credit remains intact and your relationship with your lender remains strong.  Should you expect that you may miss an upcoming mortgage payment, contact your lender as soon as possible to discuss the situation.  It is always better to keep your lender informed than in the dark, especially if you want to stop foreclosure in the future.

4. Do not deny that you may be in trouble. Facing your problems and dealing with them before they become uncontrollable is arguably the most important thing you can do to stop foreclosure. Talking with your lender and your spouse and preparing for the future is the smartest way to remain in charge of the foreclosure process and in control of your financial situation.

5. File for Chapter 13 bankruptcy to stop the foreclosure process in its tracks. If you desperately need to stop foreclosure and cannot negotiate an option with your lender, then consider filing for Chapter 13.  Make sure you learn about the ramifications of filing for bankruptcy and how it will impact your credit for years to come.  It is also important to file your Chapter 13 filings on time and to make the payments on time.

With the spike in home foreclosures seen all across the country, many lenders are reaching out to homeowners and doing what they can to stop foreclosure. It is important to use this to your advantage and to set up repayment or loan restructuring plans with your lender before your mortgage debt gets out of hand. Remember: the lender is not always the enemy in this situation! It pays to keep the lines of communication open so that you can stop the foreclosure process and keep your home.

There are dozens of ways for an investor to make money in real estate, but one of the most commonly overlooked ways is the property tax foreclosure market. We all know that taxes have to be paid, but life sometimes gets in the way of the best laid plans.

Missing a tax deadline is sometimes the result of a lack of funds, but in many other cases people forget they own property or are unaware that a deceased family member has left property to them. When this happens, notices are sent, and if they’re not taken care of by the homeowner within a reasonable period of time, property tax foreclosure can be the final solution for a local governmental body that just wants their money.

The key to capitalizing on the opportunities presented by property tax foreclosure is to learn the process in your state. Every state has their own method of collecting on unpaid taxes. Some will auction off properties, while others will sell tax deed certificates to investors for a fixed rate of return. The investor can then earn interest on the certificate from the homeowner. Then, if the taxes aren’t paid within a defined period of time (based on the laws of the state), the investor will be able to gain control of the property through property tax foreclosure.

There are lots of ways to turn a profit in real estate today, and property tax foreclosure is one of the best. You can make money in more than one way – and even though the homeowner usually pays the taxes owed – you won’t walk away empty handed. So look into the possibilities presented by property tax foreclosure.

You’ll be glad you did.