Since the real estate crash and economic meltdown in 2008 buying and selling Bulk REO is the hottest real estate niche in the country.
This new real estate business is only a few years old and not many people know how it really works.
The good news is there is far less competition than buying single REO homes from REO agents one at time.
Most investors don’t understand how to make money with it, or they think it's too risky and Here’s why:
When you buy bulk REO properties from a bank you are buying these homes sight unseen.
This is enough to scare away most traditional investors...
But don't worry.
I’m about to show you how to take the risk out of buying REO Bulk.
First, let's cover what Bulk REO is
Bulk REO is a bundle of foreclosed properties consisting of 50, 100, 200, or 500 properties that the bank owns.
Some of the homes may be listed for sale with real estate agents while others may not. These homes just sit vacant costing the bank money.
Because banks are in the lending business and are not in the property management business they want these toxic-assets off their books and money from the sale back in their hand so they can make new loans.
The bank makes money from making loans so this has created a tremendous opportunity for investors who know how to play in this market.
A bulk REO package is referred to as a tape and these tapes contain tens or hundreds or even thousands of REO properties.
A tape is nothing more than an excel spreadsheet with line after line of properties on it.
The tapes usually require a user name and password so the closer you are to the bank the greater the chance you will get access to the tapes.
The closer to the bank you are the larger the tape and the better the deals.
As the tape gets passed around the more the list was picked over, so all the great deals have been picked up from the other investors that looked at the tape before you.
Don’t worry if you don’t ever get a locked tape...locked tapes are for investors with hundreds of millions to play with.
Why Do Banks Sell Bulk REO?
Due to the U.S. economic meltdown and foreclosure crisis banks across the country are drowning with toxic mortgages and because of these toxic mortgages they are not able to meet their obligations so they are going out of business.
These bank failures are creating a unique opportunity to buy properties directly from the banks.
When a borrower does not make their mortgage payment, the bank has no choice but to start to foreclose on the borrowers home. Once the borrower is 90 days behind with their payments the bank will hire a foreclosure attorney to begin the foreclosure process.
When this happens the bank now has to incur substantial cost in addition to attorney's fees the bank will have to pay the property taxes, HOA fee and because the borrower neglects to maintain the property the bank will have the cost of repairing and maintaining the property.
Some banks have thousands of these REO properties and the financial burden is enormous!
I once read an article that mentioned the bank spends on average $3,000 to $5,000 per month to own an REO property. At this point the bank wants nothing more but to get rid of this money pit and fast!
Once the bank forecloses on a property, they will move to sell the property at a
The foreclosure auction is normally handled daily at the court house steps or at an attorney’s office.
At auction the bank will set an opening bid which is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the sale. However I’ve seen opening bids lower than the mortgage balance.
When no one bids higher than the opening bid, the property reverts back to the bank it now becomes and REO.
Because of the number of foreclosures today, many of the properties going through the foreclosure auctions are worth much less than the balance owed to the bank.
For banks the foreclosure auction process is a normal way to sell off foreclosure homes as a way to avoid having to take the property back.
These homes to the bank are considered toxic-assets and until lately they were considered a liability to the banks.
Today more then ever due to the U.S. foreclosure epidemic banks are plagued with these toxic-assets and because of this the normal process that handles these foreclosures is backed up and making the foreclosure process take longer then ever before.
I’ve heard of home owners living a home for 12 months before their home finally was foreclosed.
Because of the toxic-assets, bank failures, and Federal and State Regulators breathing down the throats of banks to do something about all these defaulted loans, banks are now seeking other ways to ridding themselves of these toxic-assets and raise capital to keep them from going under.
One such way is selling pools of non-performing notes and pooling REO properties into Bulk packages to sell to Investors.
How Do You Profit From
Personally I have always hated walking properties...
Once you’ve seen a single family house you’ve seen them all.
Traditionally most real estate investors are used to going out to a property they are thinking of buying and physically inspecting properties themselves. These people are touchy, feely investors.
Now, when you buy REO packages from banks it's impossible to see and walk through every property when you're agreeing to buy 30, 50, 100 or 500 homes that may be scattered across one, two or three states.
Therefore, you’ll have to depend on others to go out in each local market and inspect the properties for you.
Since I don’t like to walk through every property I buy, buying bulk REO was perfect for me. You may come across a hard time buying this way especially when you tell your friends or partners that you are planning on buying a bunch of properties sight unseen.
However, you can develop a system that will allow you to buy and sell Bulk REO deals without ever looking at a single property and I’m going to show you how to do it so you can still feel comfortable buying bulk REO.
Basically there are three ways to make money in the Bulk REO business...
1). My favourite: you have money and you enter into a contract with the bank to buy a bulk REO package.
Ok…I can already hear you saying "Dario, I don’t have that kind of money!"
Yes, you can get started buying and selling Bulk REO deals without any money. Let me show you exactly how this can be done.
If you don’t have your own money to buy bulk REO your options will be the following:
2). Find a partner or partners with money
3). Brokering Deals
Finding a partner with Money:
I constantly speak with people that tell me they are not able to find any partner...no one wants to invest with them, and they come up with all the negative reasons for why.
Here is what I have to say about this...
If you have a real deal they will come!!!
People with money have money because for the most part they know what a good deal is and what a good deal is not.
If you cannot find a partner here is the first problem: YOU DON’T HAVE A GRAT DEAL!!!
People won’t tell you this...they will just say they are not interested. Pay attention to what people say and read between the lines.
I find myself shaking my head when I speak with people that tell me finding a partner is impossible.
You can network and talk to potential partners all day long but if you do not ask them to give you the money they won’t.
You must ask people to give you money in order to get the money you need to buy properties.
Here’s the problem...we do not like REJECTION!!!
We don’t ask because we don’t want to hear NO.
Here’s a tip, it’s my experience:
* For every 20 "NO’s" you hear you will hear 5 Maybe’s and of the 5 maybe’s you will get 1 "YES".
So remember this:
The more NO’s you hear the closer you are to finding a partner. Now go out there and get rejected so you can start buying bulk REO properties or any other real estate deals you want.
Brokering Bulk REO Deals:
Brokering REO packages is much easier to do than think...
However it requires you to put in a certain amount of effort and the greater the effort the greater the success.
A Bulk REO Broker, Trader, Flipper, Wholesaler or Syndicate acts as a middleman between the seller and the buyer.
The great thing about brokering bulk REO deals is, you are NOT required to be professionally licensed.
Another advantage about brokering REO packages is that you don't have to have any Cash or Credit to get started.
You don’t need an office, staff or car and you can do it part-time from your home in your underwear.
Brokering Bulk REO deals only requires that you have equipment that can be found in almost every home today and if you don’t have it you can make a small investment to buy the equipment.
Here is what you will need:
1. A Computer: This will allow you to network with other Bulk REO Brokers, Bankers and Investors or partners online.
2. Telephone: This will be used to communicate offline with the people you network with online.
3. Fax Machine: This will be used to send and receive all the documents and contracts when doing these deals.(However...because of the convenience of email and PDF files I no longer use a fax machine.)
How Do You Get Started Brokering Bulk REO'S?
The first thing you have to do is understand the roles so you can determine which niche you want to become an expert.
There are two types of Bulk REO Brokers: The Seller's Rep and the Buyers Rep.
The role of the Buyer's Rep is to work exclusively with buyers who are looking to buy REO packages. Your role is to find buyers with cash that want to buy REO packages and present them with a seller.
To protect yourself you have your buyer sign a confidentiality agreement and charge a fee for your efforts for finding great bulk REO deals for them to buy.
The role of the Seller's Rep is to works exclusively with sellers of Bulk REO packages.
The seller may be a bank, a private equity fund, hedge fund or a private investor.
As a seller's rep, your job is to find great REO packages and offer them for sale.
To protect yourself, every time a potential buyer contacts you about buying a Bulk REO package you have them sign a confidentiality agreement before sending them any information so when they buy you get paid a fee for your efforts.
You can act as both a buyer and a seller rep, but I would suggest when you start you act as a seller rep.
In my experience it’s easier to find great REO packages than it is to find true buyers with cash that will actually buy an REO package.
The roles are very similar, and which side you chose will depend on what lead source you have to start with.
If you have a good source of bulk REO packages for sale you can become the seller's rep. If you have a serious buyer of Bulk REO packages you become a buyer's rep.
I’ve acted as both buyer and seller rep and made a lot of money. However I prefer buying REO packages myself because I have the money and want to build my inventory of rental properties.
The last time I acted as a buyer’s rep I made $100,000 by closing on a $1.8 million REO deal and made $100,000 working as a buyer’s rep.
Here’s how it works:
Step 1 – Find a Bulk REO Tape from a Bank, Private Investor, or Fund
To start I would suggest you try to find a small REO package of $250,000 to $500,000
Step 2 – Find A Buyer
or contact people in your network that would be interested in buying a small package REO Deal.
Step 3 – Arrange A Conference Call
Have the buyer sign a confidentially agreement which includes a fee for you and arrange a call between the buyer and seller with you on the call to talk about the particulars of the deal.
The buyer needs to provide verifiable Proof of Funds (POF) to the small bulk REO seller and the tape will be sent to the buyer via email.
Step 4 - Due Diligence
The buyer conducts their due diligence and moves forward to close on the REO package.
Step 5 – Fee Agreement
You and the seller sign a Fee Agreement to pay you the difference between the seller’s price for example $300,000 to you and your sale price to your buyer for $325,000.
Step 6 – Contract & Closing
Your buyer executes a contract and makes arrangements to close within a couple of days. Once the funds are sent to the seller's Title Agent you will pick up a check for your $25,000.
Most of my time is spent filtering for serious investors to find the true buyers.
In the beginning you will be frustrated by all of the flaky buyers and sellers of Bulk REO who care nothing more than to waste your time.
As a buyer or a Broker you will have to learn how to distinguish between the real buyers and sellers of REO packages.
This will take time so be persistent in developing the skills you will need to identify the real players from the time wasters.
There is an art to this and the better you are at it, the fewer headaches you will have, the less time you will waste and ultimately the more money you will make.
Return from Bulk REO to HOME