Real Estate Owned (REO)

Real estate owned is property that went back to the lender after nobody bought it at the foreclosure auction. Banks list REO homes through agents, often in rough condition, which makes them a common source of the discounted, dated houses that BRRRR investors buy and rehab.

Lenders sell REO as-is. Inspections are usually allowed, repairs are not negotiated, and the bank's addendum often overrides parts of the standard purchase contract. Utilities may be off and the house may have sat vacant for months, so the rehab budget has to allow for water damage, missing fixtures and code issues.

Some REO homes cannot qualify for a standard mortgage in their current state, which thins the buyer pool and helps the price. That is why these deals are often bought with cash or a hard money loan and refinanced after the work is done.

Further reading: Real Estate Owned (REO) on Wikipedia.