Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Real Estate Owned (REO)

What it is:

Real estate owned (REO) is a term describing real estate owned by lenders, usually because the lender has foreclosed on the property.

How it works (Example):

Let's say John Doe falls behind on his house payments, and his lender, Bank XYZ, forecloses on the house. Bank XYZ doesn't want to be in the real estate business, so it puts the house up for sale for the amount of the loan ($400,000), but because the house is really only worth about $275,000, nobody will buy it.

The house is a REO because the bank owns it.

Why it Matters:

REOs often are less expensive than similar properties, but they often need remodeling or other investment. Banks do not want to be in the real estate business, so when they have REOs on their hands, they often will do what they can to sell the property and recover at least some portion of the mortgage loan amount. This might involve paying off tax liens or other issues associated with the property, and they might list them for below market value, which is why some real estate investors are attracted to REOs.