In order for real estate investing to work for you, you must always keep in mind the economic conditions that dictate which 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 non-performing loans and bank-owned REOs are the unfortunate children of the economic downturn. As the economic crisis drags on, so does home loss, as struggling homeowners can’t keep up with loans and mortgages.
An adaptation of the well-known nursery rhyme “First comes a bad loan, then comes a foreclosure” serves to illustrate the progression of dealing with distressed properties and the main difference between the two concepts. Although they undoubtedly traveled the same path, the difference in how far away each of them is.
Let’s say a homeowner can no longer afford to repay a loan. The first month the bank lets it pass. The second month, they send the letter. The third drops the gavel: the property has been declared as a non-performing loan. For all intents and purposes, a delinquent home loan is a home loan that has defaulted or is in danger of defaulting when the owner can no longer make payments. With a few exceptions, three months is all a homeowner has to deliver the estate before their loan is declared delinquent. And being the current economic conditions, non-performing loans are sprouting like mushrooms after the rain. Finance corporations that specialize in non-performing loans will help with the purchase of a loan that best suits individual financial portfolios. By liquidating the assets involved, they can realistically provide good value. But not 50% off 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 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 payment on a home loan will, sooner or later, result in “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 today’s economy, banks have a veritable tsunami of real estate on the way. Fighting savagely to recover at least some money and settle the books, banks sell bank-owned REO properties like tomatoes at the local market, at a discount, liens and other expenses on the house eliminated.
While both are viable options for a real estate investor, everyone wants to buy where the deal is best. And in real estate, affordable, bulk, plentiful and flexible bank-owned REOs are far better than a sometimes expensive and bombastic non-performing loan.
And who wouldn’t opt for an offer that provides the maximum benefit with a minimum investment, fast.