Is it possible to become a multimillionaire through real estate investing? The answer is absolutely yes! There is no secret formula other than proper management of your investment portfolio and a good working knowledge of possible venues.

Investors who are new to the real estate market often overlook some of the least risky and most profitable properties. One of these is Real Estate Owned (REO) properties.

Real Estate Owned Property

REO refers to real estate which is owned by a bank or other mortgage lender. This is usually due to a foreclosure action which resulted in the inability to sell the property at auction. Either through court order or the bank paying a repossession filing fee, real estate with a delinquent mortgage reverts back to the lender, along with the deed.

Sometimes homeowners sign a “Deed in Lieu of Foreclosure” document at the time they close on their house. In this instance, the property deed automatically transfers to the lending institution in case of default rather than the homeowner having a black mark on their credit rating from a foreclosure. This document may also exist if there are additional liens on the house, allowing the bank to remove liabilities without court action.

Motivated Lenders

The Federal Reserve requires a cash reserve be kept on REOs. The amount of the reserve depends on such things as the financial condition of the lending institution. At times, the reserve amount may be equal to much more than the amount mortgaged. This can be a tremendous financial burden on the lender but it also adds to their motivation in unloading the real estate.

Banks are not realtors and they do not really want to be put in the position of having to sell foreclosed property. They will attempt to auction off the real estate as quickly as possible while still recovering their costs. This is what creates a prime opportunity for the real estate investor.

As an investor, keep in mind that you should thoroughly research properties to determine if the homeowner is behind on their mortgage payments and possibly facing foreclosure. You do not want to walk into that situation. Rather, wait until the property becomes an REO and then profit from the bank and the unfortunate homeowner’s loss.