Buying and selling REO in bulk is one of the newest real estate strategies in the country today. The best thing about this business is that it is so new that not many people know about it and if they do, they don’t know how the strategy works to be successful.
The bulk REO business has very little competition compared to buying individual REO homes from REO agents. This is why.
When you buy a portfolio of REO assets in bulk, you’re essentially buying them “on demand” and “as is.” This could be a recipe for disaster for the average investor. When you buy REO homes in bulk from banks, inspecting these homes is almost impossible to do when you have 50-500 homes spread across the country. However, what I will do is share with you a way to avoid the risk of buying REO in bulk. Before we do, let’s examine the business.
WHY DO BANKS SELL IN BULK INMATES?
The current foreclosure crisis is putting banks in a dangerous financial situation. This has created the unique opportunity to buy properties directly from banks. Today, banks across the US have huge portfolios of REO houses and bad loans.
When a borrower defaults on their mortgage, the bank will start the foreclosure process on their home. That mortgage note is now considered non-performing and becomes a liability on the banks’ balance sheets. They have to keep reserves to cover their losses and so now their borrowing power is diminished because they can’t lend the money to make money.
In addition to the bank’s loss of income, the bank must also pay attorneys’ fees; keeping the risk policy up to date, property taxes and many times they have to maintain the property. At this point, the bank wants nothing more than to get rid of this money pit!
The term for foreclosure on a property will also depend on where the property is located, i.e. in a judicial or non-judicial state. In a non-judicial State, the foreclosure process is faster and can be done in 2-3 months, while in a judicial State the process normally takes around 6-12 months.
Once the court has issued a “Notice of Judgment” in a judicial State or a “Notice of Trustee Sale” in a non-judicial State, the bank will proceed to sell the property at the foreclosure auction.
At auction, the initial offer for the property is usually equal to the outstanding balance of the loan, increased interest, and additional fees and attorney fees associated with the sale. If there are no offers higher than the initial offer, the property will be purchased by the lawyer working on behalf of the bank. If this occurs, and the opening offer is not honored, the property is considered REO, or real estate ownership.
Federal regulators are coming down on banks to do something about the defaulted loans on their books. Banks are desperately looking for ways to get rid of these toxic assets, such as selling their non-performing notes and portfolios of REO properties in bulk.
WHAT ARE BULK REO?
Bulk REOs are simply repossessed property that the bank now owns and is called “real estate ownership.” Typically, the bank will list these properties with an agent, however there are exceptions to every rule.
When a bank is interested in selling a portfolio of toxic assets, it assembles them into a package (an Excel spreadsheet) called a tape. These tapes contain tens or hundreds of REO properties.
HOW DO I START?
There are several ways to make money buying and selling REOs in bulk. Your options are…
1. Purchase on your own
2. Brokerage of Bulk REO Deals
3. Recompilation or separation
Bulk REO brokerage is the easiest and fastest way to get paid. A bulk REO broker acts as an intermediary between the seller of a bulk REO tape and the buyer. (No license is required to trade REO deals in bulk.)
One of the reasons so many new people are getting into the business is that you also don’t have to use any of your own “cash or credit” to get started. You can do this business part-time from home, with a computer and a phone.
HOW TO BEGIN TO INTERMEDIATE INMATES IN BULK?
There are two types of sides for Bulk REO Trader. The first is a Seller’s Representative and the other is a Buyers’ Representative.
A Buyer’s Representative works with buyers looking for tapes to evaluate and purchase. They charge a fee for finding a product for the buyer to purchase.
A Seller Representative Jobs will work with sellers looking to sell REO tapes in bulk. The seller can be a bank, private equity fund, hedge fund, or private investor. They are paid a fee for finding a buyer.
You can work both sides!
Let’s review a sample offer.
Last month, one of my students closed on a small bulk REO package and made $55,000 working as a seller’s rep. Total time on the deal, 6 hours!
Let me explain how this deal worked:
- Find the product: A private bulk REO seller called me about 50 tiny houses in the Southwest that he had found at a smaller regional bank. The bank wanted $1,100,000 for the tape.
- Find a Buyer: My student had created his buyers list as I taught him, and he knew that some interested parties would be interested in this tape.
- The phone meeting: He arranged for the buyers and the seller to discuss the details of the deal. Buyer provided buyer’s letter or intent and proof of funds (POF) to seller and tape was emailed to seller.
- Due Diligence: Buyer did their due diligence in 7 days and moved on
- Master Fee Agreement: The seller and my student have signed the Master Fee Agreement to receive payment of the difference between the seller’s price of $1,100,000 and my sale price or fee to my buyer of $1,150,000.
- Contract and Closing: The buyer executed a contract and arranged to close the next day. Once the funds were sent to my seller’s Title Agent, a check for $50,000 was sent to him.
Anyone can do this business, but there are some potential struggles along the way. There are many jokers and runners. Finding a real product if you’re not getting your own product can take a long time wading through people who say “I know someone who knows a guy inside a bank.” These people will waste your time and energy and will not cut deals.
In this business, a Broker has to learn to acquire REAL products directly from banks, and also learn to distinguish between real buyers and fake ones.
This is not a business you need to be a rocket scientist. Follow the rules, set strict guidelines for interaction, build good relationships and learn the business terminology and you can be very successful in this new niche market of Bulk REO Investing.
