How to Buy REOs REOs Versus NonPerforming Notes

I would like to share something on how to buy REOs vs. Non-Performing Notes with You.

It's a tough choice, I know.

And I'm sure some people look at non-performing notes and say "Why would I EVER want to own paper when I can own the real estate for soooo cheap?!"

Well, yes. REOs can be cheap.

Well, yes. It is real property as opposed to a debt obligation.

And, yes. You can get rid of it pretty quickly if you price it right. So why shouldn't everyone drop everything they're doing and buy REOs?

4 Types of Risk When Buying REOs:

1. Valuation Risk

You've gotta nail the home value, and take good care of evaluating interior condition here. It's one thing to find yourself with a non-performing note, where you have several ways to turn that note into cash flow (e.g. get borrower to make payments).

It's quite another when you have a vacant property, trying to squeeze profit from your REO. It can obviously be done, but you should know your area values and your interior condition much better when buying REOs than when you're buying notes.

2. Purchase Risks Involved With REOs

They can be a time waster until you nail your sources! Usually you are dealing with 2-5 brokers deep in a chain, and at least one ubiquitous "attorney" who is a fraud and huckster claiming he or she is (not has, but "is"!) a "mandate" for someone else.

3. Deal Risks

A friend of mine just spent 2 months chasing one deal of 16 REOs. He just closed on 1 of them. All the others were pulled by the seller as the agents (all but 1 were listed) got the properties into contract.

Or they were lost to a competitor since there were 3 brokers in between him and the seller. The one REO not pulled was the one that wasn't already listed. The "loss ratio" on non-performing note pools - in other words the rate at which notes are pulled from a specific pool - aren't as high by any means. (One day, ask me about the west coast pool that we lost!)

4. Discount Risk when Buying REOs

The discounts that you typically hear about when buying REOs may not be quite as juicy as you've been made to believe.

Unlike a "sweet" note buying deal that closes in the 30%'s, REO prices in that range are typically a pipedream. But you will hear about pricing on non-performing notes being that low on a regular basis.

I'm not panning REOs by any means. Just jump in with your eyes open, and don't get fooled by all the hype that you're reading about the REO deals to be had right now.


Interested in learning more about the Note Buying Business?

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Buying REOs

From Dean Engle & NoteBuyingProfits.com - This time on How to Buy REOs