Navigating a Complex REO Deal: How Our Client Secured a 2-Flat Property - A Case Study

At Dorazio Real Estate, we’re committed to helping clients grow their real estate portfolios, one property at a time. Recently, we closed on a challenging but rewarding 2-flat deal for a client looking to expand his investment portfolio. This was a foreclosure, or REO (Real Estate Owned) property, which always brings unique challenges. Here’s what unfolded over the past two months and the key lessons we learned from the process.

What is an REO (Real Estate Owned) Property?

REO properties are homes that have been foreclosed on and taken over by banks. Since banks aren’t in the business of managing properties, they aim to sell them off as quickly as possible. However, these transactions can be complex, with several unpredictable variables depending on the property’s condition and ownership status. In this particular 2-flat deal, we encountered a number of roadblocks—but we ultimately helped our client secure a great investment.

The Challenges of an REO Deal

This REO transaction was not a walk in the park. From day one, the seller refused to communicate or answer any questions. This led to delays and made it nearly impossible to schedule inspections or walkthroughs. On top of that, one unit had a difficult tenant, and existing keys to the property were limited, further complicating access.

Additionally, the seller’s agent was entirely absentee, making it frustrating to move the process along. The worst surprise came just one day before closing, when we discovered that one of the tenants was four months behind on rent. To make matters worse, the property had several unresolved maintenance issues, and it sat next to a “rent-by-the-hour” hotel that was a likely haven of illegal activity.

Key Lessons Learned

Despite the challenges, there are valuable lessons we took from this experience:

1. Control what you can control. In a deal like this, there are many moving parts. Focus on managing the factors within your control and be prepared for the unexpected.

2. Anticipate problems and timeline issues. REO transactions often come with complications that can delay the process. Expect timeline shifts and plan for delays of potentially unknown length.

3. Gather as much information as possible upfront. Always aim to get as much detail as possible early in the process. In this case, we uncovered key details late in the game, which added complexity.

4. Expect partial truths or withheld information. Many parties involved in a foreclosure sale may not be forthcoming with the full picture. Always be prepared to work with incomplete information and dig for what’s missing.

5. Renegotiating is tough but not impossible. Most REO sales are “as-is,” making negotiations over repairs or inspections difficult. However, buyers can still use leverage when necessary. In this deal, we secured a $7,000 credit just two days before closing to cover a potential eviction after discovering the tenant’s rent arrears.

6. Be ready to make decisions without all the facts. In these deals, it’s common to have to move forward without complete clarity. This can be uncomfortable but is often necessary to close successfully.

7. Sellers may not prioritize the sale. In many REO transactions, the seller and their representatives may not have all the details or may not be motivated to provide them. Be ready for this reality and stay persistent.

A Great Outcome for Our Client

Despite the obstacles, our client walked away with a nearly new 2-flat property at an excellent price. While the deal came with risks—such as the potential eviction of a tenant behind on rent—the first priority post-closing was to speak with the tenants and establish a path forward. As it turned out, the tenants were reasonable people who simply didn’t want to pay rent to a bank that couldn’t handle basic maintenance requests and wouldn’t respond to inquiries.

Thanks to our team’s diligence, communication, and problem-solving, our client secured a fantastic investment and added another “house hack” to his growing real estate empire.

Closing Thoughts

At Dorazio Real Estate, we specialize in navigating the complexities of foreclosure and REO deals to help our clients build wealth through real estate. Whether you’re an investor looking to expand your portfolio or a first-time homebuyer exploring your options, we’re here to guide you through the twists and turns.

Thinking about buying an investment property or expanding your portfolio? Contact us today to learn more about how we can help you succeed in even the most challenging transactions.