What Are the Disadvantages of Buying an REO Property?
An REO property may be in need of repairs, and so you might not be able to move in (or rent it out) immediately after buying. The lender that owns an REO property will most likely sell it as-is, which means it could include extensive issues and problems that require fixing. However, if you are willing to put in the time and money to make the needed repairs, the property can still be a good deal.
Because the REO property is in a poor condition to start with, you might have trouble financing your purchase through a mortgage. Mortgage lenders might be unwilling to secure the loan on a property that is in disrepair. Their rationale is that it will be difficult for them to sell if they foreclose on the property after you default on the loan.
On the other hand, remember that the benefit of an REO property is that it is less expensive, and you can avoid tax and lien issues that might encumber other property. So you can both reassure potential lenders and potentially avoid a large loan, when purchasing an REO property.