Are REO's a good way to buy a Home for yourself? - Posted by Steve

Posted by Ronald * Starr(in No CA) on September 09, 2003 at 01:51:28:


I see bargain buying and own home buying as being two different activities. And incompatible. Not to say you never can buy your own home at a bargain price, but just that I don’t think it works very well.

When you buy a bargain property, you don’t really care much about amenities: location, neighborhood, style, size, and amenities of the structure and land. You will always be able to find find somebody to buy or rent from you. There may not be many people or there may be great demand. Either way, you make out from having gotten a bargain.

When you buy for yourself you do care about the amenities: quality of schools, types of neighbors, reputation of area, access to job, shopping, recreation, churches, etc. Also, the number of bedrooms, baths, the layout, the age, the structural features, the yard, the garage(s) etc.

Few properties will satisfy you. Very few properties can be bought at bargains prices. Tying to simultaneously buy at a bargain price and also get the emenities you desire makes it very difficult to find a property. You will likely spend a long time looking.

Here is a plan: look for bargains. Evaluate each bargain that locate to decide if you want it for you personal residence. If you find one that suits, you, great, buy it.

If you find one that does not suit you, great, buy it anyway. Then either resell it or refinance it to get out all your money invested and also get some cash flow. At least you will be no worse off in terms of cash than before you bought it and you will have s long-term asset.

Continue ot operate this way. If you find several bargains and not a one of them is desirable for your personal use, sell a couple to get together more cash. Then use that cash to find a home you want to live in, paying full market value for it.

Heads you win. Tails you win. Hmmmm. That sounds good. Either you find your bargain home or you else you find enough bargains to pay for your desired home, even though it is not a bargain.

And no, REOs are in most parts of the country not a good way to find bargain properties. The bargains you can get with REOS will tend to be in very poor neighborhoods, in deplorable condition, or both. Why buy a rundown house for you own use? Buy a nice house, so you don’t have to spend a lot of time fixing up where you live. Spend the time finding, and, if necessary, fixing up the quick-flip or the investment properties.

Just the way JT-IN sees things. Hmmm. Or something like that.

Good InvestingRon Starr

Are REO’s a good way to buy a Home for yourself? - Posted by Steve

Posted by Steve on September 08, 2003 at 23:38:22:

Are REO’s a good way to buy a Home for yourself?

I’m looking for a new home and wanted to try to get one cheap so I don’t have to move out of my area. Is this a good method?

If not, does anyone have any other suggestions on how to find a cheaper house so that I won’t have to move away from my area? :frowning:

Thank you to all who reply!

Re: Are REO’s a good way to buy a Home … - Posted by Frank Chin

Posted by Frank Chin on September 09, 2003 at 07:38:51:


I agree with Ron.

I’ll also take a stab at this as this was the “first question” I had to answer when I started REI over 20 years ago.

Rather than REO’s, which I eventually bought some, I wrestled with the problem of acquiring good, priced right investment type real estate, as compared to something I would want to live in myself. I was looking at doing long term rentals, as opposed to doing flips,etc.

I decided that I would go for an investment type RE first, and if need be, rent a place myself in an area that I would want to live in as the first step. Fortunately, after looking at over 100 properties, I found a functionally obsolete property in a halfway decent neighborhood that I can call home.

The key for a good home is a neighborhood I like, convenience to shopping, and proximity to relatives and friends in our case. The 3 family we bought had no dinning room, old kitchens and bathrooms. So we had a dining room table sitting at one end of the living room for the first five years.

In short, the compromised me made was to eat in the Living room.

Five years later, I had a contractor take down the wall between the living room, and the eating part of the eat in kitchen, creating a dining room. This little job cost me $5,000.00 per kitchen. I did this for the two larger units in the bulding costing me $10,000.00 or so.

But the price difference between a house I can call home in the area and this obsolete one was $60,000 to $70,000 to begin with, so spending the $10,000 was very cost effective. I think the seller was somewaht motivated which helped.

I currently have a tenant who’s a business owner. He rents from me because he liked the neighborhood.

But he owns rental RE elsewhere. So he pays me $1,200/month me to live in a neighborhood he liked. But to own a home, and pay utlities, at current prices in the area, he would have to pay over $2,500/month.

Of course, I could’ve charged market rent of $1,400/month. But I’m able to charge such low prices to keep trunvoer low because I bought the place as an REO when the market was in a slump here, with higher interest rates, and prices have doubled since 1993, and I refi-ed at the lower rates.

Rents doubled here since 1993, and interest rates dropped from 10% to around 5%. You can imagine what this does to the bottom line.

To answer your question, you might identify several areas you would like to live in, and look for something functionally obsolete or an REO, live there for a short while, and rent the place out later.

If this is not possible, concentrate on buying a rental, in a cheaper area, and then rent a place for yourself in a better neighborhood. The only downside of this is many insurance companies does not insure your NOO property unless you insure your own home with them.

Frank Chin

Re: My $.02 - Posted by Trapper

Posted by Trapper on September 09, 2003 at 07:01:55:

I live in a home that was an REO. I watch the Sheriff sales and look for homes in my area.
I found the bank that bought it at Sheriff’s sale.
I contacted them and they told me the name of the going to be listing agent. This gave me time to check out the neighborhood and get a good idea on value. The first day it was up for sale, at about 90% of value. I dickered and got them down 19K.
from that price. I bought it, I’ve put about 20K into it.
I now have about 40 to 50 in equity. That was 18 months ago. It can be done, but it won’t just fall in your lap. Do your homework and be ready to pounce.