REO Investment: Cash Cow or Cash Drain?

By
Real Estate Agent with Prestige Property Brokers

Novice and professional investors find themselves in competition over Columbus, GA REO and foreclosure opportunities. The goal of building a long-term, profitable investment is the same for both groups, but the professionals have an institutional advantage. They have systems in place and experienced personnel who bring a high degree of confidence to their estimates of the financial tradeoffs for any candidate property. Novices have to rely on their own calculations.

For readers unsure of that  'REO' expression, it's an acronym that is short for 'real estate owned.' Not very illuminating, is it? What most people mean when they describe a local REO is a property whose ownership has reverted back to a lender. By most accounts it's referred to as a "foreclosure".

Whether buying with cash on the courthouse steps or taking advantage of record low mortgage rates, every investor needs to boil down the cash flow versus potential net return when evaluating any Columbus, GA area foreclosure's potential. First step: consider the ongoing out-of-pocket expenses:

  • Leasing costs
  • Management cost
  • Capital costs

While leasing and management fees are fairly predictable, a REO home often requires more deferred maintenance attention than does a typical occupied home (which means higher upfront capital expenditures). These expenses help offset the tax burden future income would create - and there are more:

  • Insurance
  • Taxes
  • Lawn care
  • Tax return preparation fee

New investment property owners might assume that everything they do on their property is a write-off.  However…not so fast! The IRS has a different opinion. Appropriate tax-deductible repairs can include painting, fixing a broken sink or replacing a faulty lock. Improvements, on the other hand, add value to your property - and that means they are not immediately deductible. Investors must instead recoup the cost of improvements by depreciating that cost over a number of years. Improvement examples include new kitchen counters, a new deck or a garage addition.  Perhaps the biggest write-off for investors who opt to finance the investment comes once mortgage payments begin.  The Form 1098 “Interest Paid” amount is usually fully deductible.

Once costs and deductions have been projected, the investor can determine whether rental rates being charged for comparable homes are adequate to support the purchase price being contemplated. So, whether it's your 1st or 50th investment, income properties should be evaluated with the long term in mind.  Today's foreclosure and REO market offers tempting record low prices, but careful analysis still needs to be done.  If you are considering buying a REO in Columbus, GA, call me anytime.  Whether buying or selling, with the right tools it is possible to produce a valuation model accurate enough to assist your decision-making process. 

If you are preparing to buy a home in the Columbus, GA area, an important first step will be to consult an experienced agent like myself. If you’re considering selling or buying a home in the Columbus, GA area call me at 706-442-1084 or click here! It can make all the difference!

 

Why Use a Realtor like Carey Scott to Buy Real Estate?

Columbus, GA Foreclosure: Buying Opportunity

Columbus, GA Area Property Search

 

Carey Scott
ERA Elite Ventures Realty
706-442-1084 cell
706-323-0533 fax
careybscott@gmail.com
www.careyscott.com
Carey's Blog
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Rainmaker
1,004,473
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Carey:  I know, I know.  What do you do with a cash cow?  Milk it for all that it's worth... of course.

Jul 18, 2012 01:02 PM #1
Rainmaker
1,675,919
Winston Heverly
Winston Realty, Inc. - Atlantis, FL
GRI, ABR, SFR, CDPE, CIAS, PA

One needs to know terms like NOI, Cash on Cash, Cap Rate, Cash Flow, Assumptions, and Annulized Expenses and then know how they all work together.

Jul 18, 2012 01:08 PM #2
Rainer
321,406
Jack Mossman - The Nines Team at Keller Williams in Stockton
The Nines Team At Keller Williams - Stockton, CA
The Nines Team at Keller Williams in Stockton

Carey - The other big consideration on an REO property is the condition - and I'm not talking about what you can see.  The horror stories about hidden conditions caused or created by the former occupants can knock a civil projection into a cocked hat!  Great opportunity for education!  Thanks for sharing

Jul 18, 2012 01:15 PM #3
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Rainer
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Carey Scott

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