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In today's real estate industry, REO is quite the buzz word. An acronym for Real Estate Owned, REO properties are owned by the bank. Before property becomes bank owned, an attempt to sell it through foreclosure auction must first be made.

The word on the street is REO properties can be picked up for dirt cheap. However, this is rarely the case. The only exception to the rule is if you are able to locate a private real estate investor who specializes in buying bank portfolios consisting of multiple REO homes. We'll talk about that more in a moment.

Keep in mind most foreclosure homes have no equity and an inflated mortgage. More money is owed on the mortgage note than the house is worth. When a house is placed on the auction block, anyone interested in bidding on the property must make an offer that covers the cost of the real estate note, along with creditor or tax liens and a slew of other add-on fees.

In today's shaky economy, few investors are willing to pay more money than a house is worth. To top it off, foreclosure properties are notorious for needing repairs and renovations. It does not make good financial sense to buy property at a price above current market value and then pour more money into repairs. Instead, investors are waiting for foreclosure properties to revert to the bank.

Once the bank takes possession of the home, they eliminate the mortgage, remove or reduce liens, and evict individuals who may still be residing in the home. Occasionally, they will invest in repairs, clean up the property and give it a touch of curb appeal. In essence, REO properties are a nice tidy package awaiting a new owner.

Many investors seek out distressed REO bank properties directly from the bank. Oftentimes, these properties are listed on the individual bank websites. The listings generally include the name and contact information for the individual handling the property. These individuals are known as Loss Mitigators. Their job is to obtain the maximum price for REO properties in their charge.

Currently, banks are flooded with REO properties which can make it cumbersome for investors or individuals to purchase these homes. The vast majority of banks will not even considering offers of less than ninety-five cents on the dollar. If you are interested in a property with a note balance of $100,000 the minimum offer a bank will consider is $95,000.

Chances are if you start with an offer of $95,000, the bank will come back to you with a counter-offer. They might want $98,000 for the property. You, in turn, submit another counter-offer. This process could take several weeks to complete or it may fall through completely.

When working with banks to purchase REO properties prepare for an influx of counter-offers. Doing so will provide you with time to create a solid counter-offer. If there are numerous repairs or major renovations required, take photos and submit along with your proposal. Request the bank take care of the repairs or adjust the selling price to offset the costs. Thorough documentation and professional presentation can help you seal the deal.

A lesser known way to acquire REO properties is to seek out private real estate investors who specialize in purchasing bank owned property portfolios. By buying in bulk, these investors can purchase distressed properties at wholesale cost and pass the savings along to you.

Once an investor has purchased REO properties, they are no longer owned by the bank. Oftentimes, people can purchase these properties directly from the investor under current market value. Savings can be as much as 40 percent, providing the buyer with instant equity.

Regardless of whether you purchase REO properties through the bank or a private real estate investor, it's a good idea to work with an individual who has a thorough understanding of this type of real estate transaction. These individuals can guide you through the process and help you locate properties. One missing form can cause you to lose out on a lucrative real estate opportunity. Are you willing to risk that?