Posts Tagged ‘bulk reo’
Bulk REO Investing Tips
September 23rd, 2009 | 
Author: The weakness of the U.S. economy has given rise to the largest epidemic of foreclosures in American history. But smart real estate investors are turning these ‘lemons’ into ‘lemonade’ in an incredibly profitable new way.
The new opportunity is known as ‘Bulk REO Investing’ or ‘REO Package Investing’ and it’s a huge opportunity.
The basis of the Bulk REO business is foreclosures, so let’s analyze the foreclosure process now.
To understand investing in Bulk REO, you have to understand 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. The lender directs the subsequent timing of the actual foreclosure proceedings. From that time through public auction is called ‘preforeclosure’.
When a defaulted property is placed up for auction, the foreclosure process is completed. Ownership of the property is returned to the lender if the property is not sold at auction. This property is then considered to be ‘Real Estate Owned’ by the lender, also known as an ‘REO’ property.
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. However, REO properties are now frequently sold for far less than their ‘book value’. But the price of receiving such great pricing is the need to purchase multiple REO properties (a ‘package’) rather than individual properties.
These REO packages represent the potential to acquire huge amounts of equity for savvy real estate investors. REO packages are easiest to buy and sell with a well regarded source of financing in place. There are many sources of funding for these transasactions including: hard money and commercial financing, as well as non conventional sources such as hedge funds and private investors. Additionally, one man is becoming very well known in the field of bulk REO investing, and his name is Sal Bushemi of Dandrew Partners, a hedge fund in New York.
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Beginner Bulk REO Investing 101
The Rise Of The Bulk REO Concept
The recession in the U.S. economy has resulted in more foreclosures than experienced by any other generation of Americans. However, opportunistic real estate investment professionals are turning the recession into great profits with a bit of creativity.
That opportunity is called Bulk REO Investing, and the potential is huge. Let’s take a moment to analyze the basics of this incredibly lucrative business.
When a home owner begins to miss payments on their mortgage, the lender begins to send late/overdue notices to the home owner. The official foreclosure proceedings begin subsequently, as directed by the lender. From that time through public auction is called ‘preforeclosure’.
Foreclosure is completed when the property is put up for auction. The lender regains ownership of the property if there are no buyers at auction. The lender then categorizes the property as ‘Real Estate Owned’ - or ‘REO’ for short.
REO properties are usually listed for sale with local real estate agents. Yet with increasing frequency, REO properties are being sold for pennies or dimes on the dollar. The trade-off is that the buyer must purchase multiple REO properties in each transaction.
These REO packages represent the potential to acquire huge amounts of equity for savvy real estate investors. One of the best ways to take advantage of Bulk REO Investing opportunities is to partner with a well-regarded source of funding. 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 Sal 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.
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The Explanation as to Why Banks Allow the Sale of Non-Performing Mortgage Notes and Bulk REO Property
When a property is not yielding income it has dire consequences for the lenders and the general economy as well. Non-performing mortgages limit lenders borrowing power by up to 900% in many cases. Lenders can be blocked from borrowing up to $900,000 on a defaulted loan of just $100,000, that is, until the property is divested. Plus, as defaulted assets lose value banks are forced to write down the lower value and bear the loss.
(A quick note from the editor: For related information, check out Bulk REO Investing.)
There are few solutions available to lenders that relieve the brunt non-performing assets put on their registers. Lenders won’t foreclose unless all other options have been depleted. This process includes expensive steps for the lenders that start with high legal fees. While the property is still REO (Real Estate Owned), it requires extensive property management. The proliferated risk of harm being done to REO properties while they sit empty only increases the chances it will further lose value. Lastly, there are business dealings, complete with incurred expenses that encompass transferring said properties.
Another problem that lenders face is staffing. Even if lenders have exhausted all other options, if it decides to foreclose it must employee enough people to manage the properties and unload sometimes numerous REO’s. For 15 years we have been expempt from this kind of lending crisis which has included depleting lending staffs with REO knowledge at detrimental levels. On top of this is the crisis the United States faces among the larger lending services who have few if any capable REO experts who can handle bulk REO’s as well as possess the ability to successfully manage and protect them al the while selling them at a minimal loss.
Today most lenders, bond managers and servicing agencies seem to have one goal: Unload shaky loans for pennies on the dollar ASAP.
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Posted in Credit | 
Tags: bulk reo, bulk reo investing, defaulted mortgages, foreclosure investing, foreclosures, mortgage defaults | 
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