Buying and selling bulk REOs is one of the newest real estate strategies in the country today. The great thing about this business is that it is so new, not many people know about it and if they do, they have no idea how the strategy works to be successful.
Mass REO business has very little competition compared to buying a single REO house from a REO agent. Here’s why.
When you buy a portfolio of bulk REO assets, you are buying them essentially “invisible” and “as is”. This can be a recipe for disaster for the average investor. When you buy a Bulk REO house from a bank, inspecting these houses is nearly impossible when you have 50-500 homes spread across the country. However, what I’m going to do is share with you a way to take the risk of buying a Bulk REO. Before I do, let’s examine the business.
WHY BANKS SELL BULK REOS?
The current foreclosure crisis is causing banks to enter a precarious financial situation. This has created a unique opportunity to buy property direct from the bank. Today, banks across the US hold huge portfolios of REO homes and defaulted loans.
When a borrower defaults on their mortgage, the bank will initiate foreclosure proceedings on their home. That mortgage note is now considered bad and becomes a liability on the bank’s balance sheet. They had to keep reserves to cover their losses and so now their borrowing power is reduced as they cannot lend money to make money.
In addition to the loss of bank revenue, the bank also has to pay attorneys’ fees; maintain dangerous insurance policies, property taxes, and many times they have to maintain property. At this point the bank wants nothing more than to dump this money pit!
The timeline for seizing property will also depend on where the property is located i.e. in a judicial or non-judicial country. In non-judicial countries, the foreclosure process is quicker and can be carried out in 2-3 months, whereas in judicial countries the process usually takes around 6-12 months.
Once a court issues a “Notice of Judgment” in a judicial State or a “Notice of Sale of Trustee” in a non-judicial State, the bank will move to sell the property at a foreclosure auction.
At auction, the opening bid for a property usually equals the loan balance, accrued interest, and additional fees and attorneys’ fees associated with the sale. If no bid is higher than the opening bid, the property will be purchased by attorneys working on behalf of the bank. If this occurs, and the opening bid is not met, the property is considered REO or Owned Real Estate.
Federal regulators are getting to the banks to do something about defaulted loans on their books. Banks are desperately looking for ways to get rid of these toxic assets such as selling troubled notes and Bulk REO property portfolios.
WHAT IS BULK REO?
A Mass REO is simply a foreclosed property that is now owned by a bank and is called “Owned Real Estate”. Usually banks will list these properties with agents, but there are exceptions to every rule.
When a bank is interested in selling a portfolio of toxic assets, they collect them in a package (an excel spreadsheet) called a tape. These tapes contain dozens or hundreds of REO properties.
HOW DO I GET STARTED?
There are several ways to make money buying and selling bulk REOs. Your choice is…
1. Buying For Your Own Account
2. Brokerage Mass REO Offers
3. Recompile or Engrave
Brokering Mass REO Offers is the Easiest and Fastest Way to earn Cash. The Bulk REO Broker acts as an intermediary between the seller of the Bulk REO tapes and the buyer. (No license required to broker Bulk REO offers).
One of the reasons many new people are getting into the business is that you also don’t need to use your own “Cash or Credit” to get started. You can do this business part time from home, with a computer and a telephone.
HOW DO YOU START DOING REO’S BULK BROKERING?
There are two types of Bulk REO Trader sides. One is a Sales Representative and the other is a Buyer’s Representative
Buyer Representatives work with buyers who are looking for tapes to evaluate and purchase. They charge a fee to find products for their buyers to buy.
Seller Rep Karya will work closely with sellers looking to sell Bulk REO tapes. The seller may be a bank, private equity fund, hedge fund or private investor. They are paid a fee to find a buyer.
You can work on both sides!
Let’s check out a sample deal.
Last month one of my students closed a small REO Bulk plan and made $55,000 working as a sales rep. Total time in the deal, 6 hours!
Let me explain how this deal worked:
- Find the Products – REO Bulk private seller called me about 50 tiny homes in the Southwest he’d found in smaller regional banks. The bank wants $1,100,000 for the tape.
- Find Buyers – My student has listed his buyers as I taught him and he knows several interested parties will be interested in this tape.
- Phone Meeting – He arranges for the buyer and seller to talk about the details of the deal. One buyer provides his Letter or intent and Proof of Funds (POF) to the seller and the record is emailed to him.
- Due Diligence – Buyer performs due diligence within 7 days and proceeds
- Master Fee Agreement – Sellers and my students enter into a Master Fee Agreement to be paid the difference between the seller’s price of $1,100,000 and my selling price or my fee to the buyer of $1,150,000.
- Contract & Closing – Buyer signs a contract and arranges for closing the next day. After the funds were sent to my realtor’s Title Agent, he transferred a check for $50,000.
Anyone can do this business, but there are some potential difficulties along the way. There are many jokers and brokers. Finding the real product if you’re not sourcing your own product can be very time consuming wading through people who say “I know someone who knows a guy in the bank.” These people will waste your time and energy and you won’t do a deal.
In this business a Broker must learn how to get GENUINE products directly from the bank, and also learn how to distinguish between genuine and fake buyers.
This is not a business you need to be a rocket scientist for. Follow the rules, set strict guidelines for interaction, create rapport and learn business terminology and you can be very successful in this new market niche of Mass REO Investments.