Money, Cash & Finance

The Rise Of The Bulk REO Investing Industry

With more foreclosures now than ever before, America’s weak real estate market seems to set new dismal records each month. Yet as always, this challenge has given rise to a huge new opportunity for alert real estate investors.

That opportunity is called Bulk REO Investing, and the potential is huge. Foreclosures are at the heart of the Bulk REO business, so let’s consider the foreclosure process.

As a borrower becomes increasingly behind in his mortgage, the lender regularly calls and writes the borrower with default warnings and threats. Following a period of time determined by the lender, formal foreclosure proceedings begin. ‘Pre foreclosure’ is the name given to the time between implementation of the foreclosure proceedings and the public auction.

When a defaulted property is placed up for auction, the foreclosure process is completed. The lender regains ownership of the property if there are no buyers at auction. The property then receives the designation of being an ‘REO’ or the more formal name, ‘Real Estate Owned’.

Local real estate agents are usually used to resale REO properties at retail price to the general public. However, lenders are increasingly willing to take much less than their REO asset is actually worth. However, the purchase of a ‘package’ (or group) or REO properties is the trade-off for receiving such great prices.

The recession in the United States has yielded huge profits to real estate investors prepared to take advantage. Bulk REO Investors are most successful when they have a well-established source of funding for their REO packages. Some sources of funding for these transactions are: personal funds, hard money lenders, commercial lenders and non-conventional sources such as private investors and hedge funds.

Note – One of the nation’s leading experts on bulk reo investing is hedge fund manager Salvatore Buscemi. Salvatore Buscemi recognized the irrationality of the real estate boom of the late 1990’s and early 2000’s and capitalized on this by forming his very well-regarded hedge fund, Dandrew Capital Partners.

The impact felt by non-performing assets are detrimental to the economy and mortgage lenders alike.  Non-performing mortgage assets could cripple lenders abilities to borrow by just under 1000%.  Even if the amount in default is only $100,000, the impact on the bank is that it is forbidden to borrow up to $900,000 until the property is sold.  Not to mention that, as an asset goes down in market price, the banks are forced to adjust the numbers accordingly and eat the deficit.

(A quick note from the editor:  For related information, check out Bulk REO Investing.)

Mortgage lenders are left with few options to ease the weight placed on the books by non-performing assets.  Only as a last resort will banks foreclose.  These actions are pricey for lenders and start with exhorbitant legal expenses.  While the property is still REO (Real Estate Owned) it incurs the expense of considerable property management.  There is a higher chance that vacant REO properties will suffer damage further plummeting in value.  It should also be noted that with the selling of real estate also comes transaction fees and marketing expenses.

Staffing is yet another issue lenders face.  It matters little that a lender feels the only option is to foreclose if proper staffing can’t be put in place to manage and unload these REO properties.  The last time anyone saw a lending crisis of this magnitude was almost 15 years ago, and not since then have the valuable number of REO experts been lost at such perplexing numbers.  Also, the larger lenders in the United States are hard pressed to come up with current in-house experts who can manage bulk REO’s or provide the proper management or security for them while preparing to sell them without incurring too great a loss.

Without a doubt, today’s servicing agencies and mortgage companies seem to singlemindedly be in agreement to unload troubled loans as quickly as possible even if it means selling at a loss.

With more foreclosures now than ever before, America’s weak real estate market seems to set new dismal records each month. However, opportunistic http://realestate.BryanEllis.com”>real estate investment professionals are turning the recession into great profits with a bit of creativity.

‘Bulk REO Investing‘ is the name of the new strategy, and it’s captured the attention of many well-heeled investors.

Take a just a minute to consider the basics of this highly profitable business.

Understanding of the foreclosure process is central to understanding Bulk REO investing.

As a borrower becomes increasingly behind in his mortgage, the lender regularly calls and writes the borrower with default warnings and threats. The formal process of foreclosure begins at the lender’s discretion. The name for this period is ‘preforeclosure’.

The defaulted property is ultimately auctioned, thus completing the foreclosure process. If there are no buyers for the property at auction, the property is returned to the lender. The property then receives the designation of being an ‘REO’ or the more formal name, ‘Real Estate Owned’.

Lenders have no interest in owning property, and thus usually opt to list their REO properties with a local real estate broker in hopes of a retail sale. But more and more, lenders are selling their REO properties for a greatly reduced price. However, the purchase of a ‘package’ (or group) or REO properties is the trade-off for receiving such great prices.

These REO packages represent the potential to acquire huge amounts of equity for savvy real estate investors. Bulk REO Investors are most successful when they have a well-established source of funding for their REO packages. Some sources of funding for these transactions are: personal funds, hard money lenders, commercial lenders and non-conventional sources such as private investors and hedge funds. One excellent source of funding for Bulk REO Investment transactions can be found here: Bulk REO Investment Training.  (Note – please pay attention about how to acquire a $2 Million Proof of Funds.)