Here's How Bank Owned Real Estate Can Make You Money

Bank owned real estate can be a very hit or miss area of real estate investing. Many investors will find it either very profitable or very frustrating or time consuming.

We want you to understand how this process works so that you can understand whether this will be a good strategy to use in your market or not.

Bank owned real estate is the third step in the foreclosure process. If the home was not able to sell at the auction, then the bank will take back the home and try to sell it on their own. These properties are called either bank owned real estate, real estate owned (REO), or non-performing assets.

It used to be that the bank would have a list of these properties and you could walk in to your local branch and ask for the list. Banks no longer deal with these properties this way. Now, they will list them with a real estate agent and put them for sale on the market.

You success with bank owned real estate homes in your market depends largely on what is happening in the foreclosure real estate market. Once again, it all comes down to supply and demand.

Here is an example of one market sales and inventory of bank owned real estate for July 2009. Based on this example, bank owned homes would be a very viable solution for an investor in this market. This graph shows that there are considerably more homes available than those that are selling. Supply exceeds the demand, which means that banks would likely consider a discount.

If your market has more homes being sold than what is on the market, banks are going to hold out for top dollar because they know that they can get it on the market.

So, before you do anything, you should get your real estate agent to pull information similar to this graph. You want to get an idea of the bank property inventory as well as what is selling. Keep in mind that many of these properties will be in poor condition and so fewer buyers will have an interest in them.

As a general rule of thumb, the more bank owned properties there are at any given time, the greater the possibility of buying them at a discount. Since these properties are called "non-performing assets" by the bank, they are penalized by having too many of these at any given time. They have a motivation to get rid of them when the foreclosure cycle produces a lot of these types of properties.

There really is not a lot of magic with these types of properties. It is really a matter of making the offer that makes sense for you as an investor. Either the bank is going to say yes or they are going to say no. The only thing you should know is that banks are notorious for taking their time to respond on an offer. We have seen cases where the bank's first counteroffer came 45 days after the original offer. This is not typical, but you need to be prepared to be a little patient when dealing with these properties.

If you want to specialize in these types of foreclosures because there is a large supply in your area, you want to find out who your foreclosure specialists are in the area. Usually, banks will list all of their homes with the same real estate agent.

So, as you are active in your market, you will see signs like this one pictured here. This will let you know who your bank owned real estate specialists are in your area and who you should be working with. They can not only tell you what they currently have on the market, but they can also let you know what properties will be hitting the market.

Again, it all comes down to doing your research. You need to be prepared with this data when pursuing these properties. Bank owned real estate can be a great way to make money as an investor. You just need to get the right information and negotiate the right deal.