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It is a depressed real estate market out there right now. But if you have enough cash, it could be the gold-rush opportunity to you. It is time to get your first home or pick out your next investment property. However, expect many bumps in the road.

Scouting the terrain
Looking at the terms scattered around the real estate ads: short-sale, foreclosure, and REO, you know it is a new landscape out there for both the agents and buyers. We have to figure out a proper hunting strategy to deal with those conditions.

The market slide has been mainly driven by the mortgage problems, or the infamous sub-prime loans. In a nutshell, those loans give too much debt leverage power to borrowers with relative weak capability to pay. Unable to make mortgage payments, such owners are facing with a chain of events: default notice, short-sale, foreclosure sale, and REO. Most of the properties out there for sale right now fall in one of these stages.

Target A: Short sale
Short sale is like the stop-loss sale in stock trade. Bank agrees to settle the loan balance or discounted balance by allowing owner to sell the property. It is usually better off for the bank to take the money and get over it. Owner is selling under pressure, so the asking price is usually low.

Target B: Foreclosure
If short sale does not go through, foreclosure kicks in. This is a legal proceeding and it is time consuming and expensive. Public bidding is held for the foreclosure. There is seldom winners coming out of this.

Target C: REO
If there are no bids, the property will be given to the bank, becoming the bank’s Real Estate Owned (REO). Bank will be responsible for the carrying costs of upkeep, insurance, property taxes and so on.

Strategy

Okay, now let’s find a good attacking point.

Short sale is troublesome. You will be faced with a very likely uncooperative owner or occupant, slow approval(s) needed from an overwhelmed bank or very likely, multiple banks for buyer offer. It is long and slow path with with many surprises. If you don’t mind the trade-off, be super patient and keep your eyes open on other properties and make many offers. Be prepare to budget big repair costs for the property deterioration during the long wait.

Foreclosure bidding seems like a great bargain but it not for everyone. It is very risky because the normal disclosures and title information are not available as in a normal deal. So you may get yourself a big legal trouble this way.

Now REO is your best shot. Bank has jumped through all the hoops and paid all the expenses and supposedly cleaned all the liens. You are dealing with a single owner, the bank, who is very motivated to get rid of the property because of the caring costs. (More Pros and Cons)

Tactics

So REO is the achievable target for nice property with decent price, but it is also sort of competitive, especially for decent location or properties. Things can happen real fast. Do the following will help:

1. Decide on the areas you desire. It helps to focus and narrow the search
2. Position yourself by setting a price range you can afford. Just calculate the down payment and monthly loan payment. You can be decisive to give offer and negotiate with these numbers
3. Use online tools to monitor the inventory in your target areas. Many tools send out automatic emails if you set criteria. This helps you to know the trends and spot the new listing immediately
4. Visit the property at your first opportunity. Again, speed matters, a quick start gives you lead in the bank’s review process
5. Don’t be afraid to give offer at your first opportunity. This gets you ticket into the process. There are more ways than you think to get away from an offer you don’t want
6. Give an offer with a high tentative down-payment figure, but do ask for some price reduction as a start of negotiation

Tools
1. REO Database
2. www.eppraisal.com
3. www.redfin.com
4. www.zillow.com
5. Or your own Realtor’s website