Real Estate Owned (REO)

Real estate owned is property that a lender has taken back through foreclosure and holds for sale. REO properties are often vacant and sold as-is. A gross rent multiplier on one has to be built on estimated market rent, because there is usually no tenant and no rent history.

REO pricing can produce low GRMs on paper. A bank-owned house at $400,000 in a $4,000 rent area is a GRM of about 8.3 on market rent. That number assumes the property is rentable, and many REO homes need repairs before a tenant can move in.

Add the repair budget and the months of vacancy to the price before judging the multiple. REO sales are also weak comparables for building a market GRM, because distressed sales are not at arm's length and tend to trade below what a typical buyer would pay.

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