By Duncan Wierman,
a founding member of Bank REO Property Deals,
Greenville, SC 29601 U.S.A.

http://www.bulkreopropertyinvesting.com

How To Cash In On The Bulk REO's Investing Niche Buying and selling bulk REO's is one of the hottest real estate strategies in the country today. The great thing about this business is that it's so new, 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 single REO homes from REO agents. Here's why.

When you buy a portfolio of bulk REO assets, you are basically buying them "sight unseen" and "as is". This could be a recipe for disaster for the average investor. When you buy Bulk REO homes from banks, inspecting these houses is next to impossible to do when you have 50-500 houses scattered across the nation. However, what I will do is share with you a way to take the risk out of buying Bulk REO's. Before I do, lets examine the business.

WHY ARE BANKS SELLING OFF BULK REO'S?

The current foreclosure crisis is causing banks to enter into a dangerous financial situation. This has created the unique opportunity to buy properties directly from banks. Today, banks all across US have huge portfolios of REO houses and defaulted loans.

When a borrower is in default of their mortgage, the bank will start the foreclosure process on their house. That mortgage note is now considered non-performing and becomes a liability on the banks balance sheets. They have to hold reserves to cover their loss and hence now their lending power is decreased because they cannot lend the money out to make money.

In addition to the loss of income to the bank, the bank also must pay attorney's fees; keep up the hazardous insurance policy, the property taxes and many times they have to maintain the property. At this point the bank wants nothing more but to get rid of this money pit!

The timeline to foreclose on a property will also depend where the property is located, ie.. in a judiciary or non-judiciary State. In a non-judiciary State, the process to foreclose is faster and can be done in 2-3 months, while in a judiciary State the process normally takes about 6-12 months.

Once the court has issued a "Notice of Judgment" in a judiciary State or a "Notice of Trustee Sale" in a non-judiciary State, the bank will move to sell the property at the foreclosure auction.

At the auction, the opening bid for the property is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the sale. If there are no bids higher than the opening bid, the property will be purchased by the attorney working on behalf of the bank. If this occurs, and the opening bid is not met, the property is deemed a REO or Real Estate Owned.

Federal Regulators are coming down on the banks to do something about the defaulted loans on their books. Banks are desperately look for ways to get rid of these toxic assets such as selling their non-performing notes and portfolios of Bulk REO properties.

WHAT ARE BULK REO's?

Bulk REO's are simply foreclosed properties that the bank now owns and are called "Real Estate Owned". Usually 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, they assemble them in a package (an excel spreadsheet) referred to as a tape. These tapes contain tens or hundreds of REO properties.

HOW DO I GET STARTED?

There are several ways to make money buying and selling bulk REO's. Your options are either...

1. Buying For Your Own Account

2. Brokering Bulk REO Deals

3. Recompiling or Carve Out

Brokering Bulk REO Deals is the Easiest and Fastest Way to Cash. A Bulk REO Broker acts as a middleman between the seller of a Bulk REO tape and a buyer. (No license is required to broker Bulk REO deals).

One of the reasons 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 DO YOU GET STARTED BROKERING BULK REO'S?

There are two sides to the Bulk REO Trader. The first is a Seller's Representative and the other is a Buyers Representative.

A Buyer's Rep works with buyers who are looking for tapes to evaluate and purchase. They charge a fee for finding product for their buyer to purchase.

A Seller's Rep works with sellers looking to sell Bulk REO tapes. The seller may be a bank, private equity fund, hedge fund or a private investor. They get paid a fee for finding a buyer.

You can work both sides!

Lets examine a sample deal.

Last month one of my students closed on a small Bulk REO package and made $55,000 working as the seller's rep. Total time in the deal, 6 hours!

Let me explain how this deal worked:

Step 1 - Find The Product.

A Bulk REO private seller called me about 50 small homes in the South West he had found at a smaller regional bank. The bank wanted $1,100,000 for the tape.

Step 2 - Find A Buyer.

My student had built his buyers list as I taught him and he knew quite a few interested parties would be interested in this tape.

Step 3 - Arrange A Conference Call.

He arranged a conference call for the buyers and the seller to talk about the particulars of the deal. The one buyer provided his Letter or intent and a Proof of Funds (POF) to the seller and the tape was sent to him via email.

Step 4 - Due Diligence.

The buyer conducted his dufe diligence in 7 days and moved forward.

Step 5 - Master Fee Agreement.

The seller and my student signed the Master Fee Agreement to get paid the difference between the seller's price of $1,100,000 and my sale price or fee to my buyer for $1,150,000.

Step 6 - Contract & Closing.

The buyer executed a contract and made arrangements to close the next day. Once the funds were sent to my seller's Title Agent, he was wired a check for $50,000.

Anyone can do this business, but there are some potential struggles along the way. There are many jokers and brokers. Finding real product if you are not sourcing your own product can be very time consuming wading through people who say "I know someone who knows a guy inside a bank". These people will waste your time and your energy and you will not do deals.

In this business a Broker has to learn how to acquire REAL product directly from banks, and also learn how to distinguish between the real buyers from the fake ones.

This is not a business that you need to be a rocket scientist. Follow the rules, set strict guidelines for interaction, create good relationships, and learn the business terminology and you can be very successful in this new niche market of Bulk REO Investing.

About the Author:

Duncan Wierman is a founding member of Bank REO Property Deals. He has written a complete guide to the BULK REO industry to assist investors to be more proficient and to produce quality product. You can find out more about this concise guide at http://www.bulkreopropertyinvesting.com

Published - May 2010