Buying bank-owned REOs, like buying foreclosures or short sales, is a great way to get into the real estate market and make a profit. However, like foreclosures and short sales, bank-owned REOs come with their own set of risks and common mistakes. Here are the three biggest mistakes investors make when buying bank-owned REOs:

#1 Have an inadequate understanding of the property’s condition.  This cannot be overstated: these kinds of properties are nowhere near move-in ready. They take a lot of work to turn around. Do your research, get an independent appraisal and inspection, and have a contractor take a look at it. You need to know how much it’s going to cost to get it saleable.

#2 Forget to find out the property’s history. You need to know how the property got in the condition it’s in. How many previous owners has it had? Has it ever been a site for drug production or other criminal activity? Has it been cited for multiple code violations? You need to know the facts.

#3 Assume it’s a bargain. Banks are not interested in losing money. The almost never “dump” real estate. Don’t just assume the price is a good deal because the property is bank owned.  Find some good comparables and talk to other realtors. Make your offer based on what you know about the property, not what the bank says.

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