You'll have two categories of REOs…..one that needs some cosmetic work (cleaning, paint, minor repairs)…..and the one that needs some serious renovations. It's pretty rare to find a move-in ready REO, unless the bank has already contracted out repairs to increase the value of the property.

Which category you pursue should be determined by time and resources. If you have cash to invest and want to flip the house, make sure you thoroughly inspect the home and consider the worst-case scenario when budgeting. Many REOs are "winterized," meaning the utilities are off and you may or may not be able to determine that the electrical, sewer, and water work properly before you buy. I wouldn't recommend shopping for this group of REOs unless you have trusted contractors lined up to work with you, spare funds in the budget, and a good agent who can price the home strategically and get it sold fast.

If you plan to purchase the REO to live in, a cosmetic fixer is a good fit. As long as the key items are there–cooking appliances, water, heat, electricity–you can move in and replace the carpet, update kitchen, and landscape the yard over the next two to five years. This strategy allows you to build equity over time via the do-it-yourself method. It's a good fit for people who have owned their own home in the past or are handy with home remodeling experience.

Writing your offer in a manner that appeals to the bank is important. Banks are not giving homes away or so desperate to unload them that they'll agree to ridiculous terms. A cash offer without a loan involved is a strong offer guaranteeing the bank a fast sale. A cash offer for less money than an offer contingent on a loan or repairs may still be more attractive overall.