REO (Real Estate Owned) property is bank owned property which has not been sold at a foreclosure auction for one reason or another.  As a result, ownership reverts back to the lender.  The Federal Reserve reports that each REO property costs lenders an average of $80,000.  Since this money is now required by regulations to be held in reserve, the company that made the loan now has it frozen in their bad asset column and cannot lend on it.   

For real estate investors, Real Estate Owned by lending institutions have a real potential for profit if the amount of rehabbing isn’t too significant.  The problem with some of these properties is they may have been vacant for a long period of time which usually means some vandalism or if there was very little or none, the previous owner may have lacked the resources necessary to make regular repairs and maintenance on the property.  For the savvy investor who can quickly evaluate a property to determine rehab costs, this is an excellent time to make some very nice profits from the REO market.