Introduction

So You Want to Buy Repossessed Real Estate

So You Want to Buy Repossessed Real Estate

Buy Repossessed Real Estate

The idea of flipping real estate has been around for a long time. It may have fallen out of favor during the housing bust, but consumers are feeling better about the economy now. All of those cable TV shows are looking more enticing to those looking to make a quick profit.

Now before we go any further …we are not realtors nor do we claim to know the ins and outs of this niche industry. We did, however, get the following tips from Zillow.com:

Get an Appraisal & Inspection

“REO properties are not automatically bargains. Banks are in business to make money, so they price their homes competitively. Some REOs are discounted because of severe damage or location.“

Do a Title Search 

Never assume the property has a clean title. “Search public records for liens and outstanding taxes, then hire a title company to run a full, insured title search before closing the deal.”

Practice Patience

It may take weeks to hear back on your  purchase offer.

Now, if you’re still interested in buying repos, Bauer knows which banks have them. And while the inventory has been steadily declining since 2010, all of the banks listed on page 7 have at least $25 million in REO/OREO (Other Real Estate Owned, usually from foreclosure).

Another source of OREO is the FDIC itself, which sometimes ends up with property from a bank failure. As of August 9, 2017, the FDIC had 133 properties for sale, including 71 single family homes, 42 parcels of land, 14 commercial properties and five former bank branches. You can learn more about these at fdic.gov.

When bank OREO hit its peak, nearly 80% of all U.S. banks had some OREO on their books and the industry total surpassed $50 billion. Today, about 63% still report some OREO, but the total is down to about $10 billion. But while the inventory industry-wide is declining, that is not the case for some of the banks listed on page 7.

Compass Bank, for example, barely made this list with OREO of $25.113 at March 31st. The previous quarter, it would have escaped the list altogether as it had just $21.112 million in OREO at year-end 2016. At March 31, 2016, Compass Bank’s OREO was just $17.887 million. So while $25 million may not seem like a lot for an $84 billion asset bank, its year-over-year increase in OREO is greater than 40%.

Another example, First Citizens, Raleigh, NC , released its second quarter earnings report on July 26, 2017 in which it stated that nonperforming assets increased $6.2 million  from March 31st. It attributed  that increase to a $4.3 million jump in OREO and a $1.9 million increase in nonaccrual loans. The two prior quarters, First Citizens’ OREO had dropped, but that does show the fluid nature of OREO.

It also bears noting that both of these examples hale from the Atlanta Region, which was the leader in Nonperforming Assets (Delinquencies + OREO) from 2011-2014 (see chart below). In 2015, the Kansas City Region took the lead, or re-took the lead, we should say, since it had been the leader in 2010. By the end of 2016, the Dallas, Atlanta and Kansas City regions were all neck and neck, all just a little above 1%. A big improvement.

The San Francisco and New York Regions have consistently remained at the bottom of the pile, which in this case, is a very good thing. It’s not so good if you are looking to purchase OREO in San Francisco, but there are still some to be had.

 

Repossessed Real Estate Report