Copyright (c) 2009 Duncan Wierman

As the U.S. economy struggles to make a comeback, the real estate foreclosure market is still a ripe place for wealthy investors to do what they do best. Unfortunately, foreclosed homes are at an all time high, thus creating an environment for savvy investors to make a tremendous profit. Because there is such an expanding surplus of foreclosed properties, a new investment opportunity known as bulk REO investing has gained popularity as many scramble to seize this very lucrative investing moment.

REO stands for Real Estate Owned. Bulk REO investing may be a relatively new description, but it is based on an old concept: buying multiple foreclosed properties. To understand how this investing niche works, it’s important to first understand a little about the foreclosure market and why it’s such a rewarding opportunity for investors.

When a property owner fails to pay their mortgage payments, the bank or lender that owns the mortgage takes possession of the property. Depending upon who the lender is, homeowners are sometimes able to modify their loan payments in an attempt to catch up on their arrearages and continue to occupy their home. However, with a record number of jobs being currently being lost and a trend that has left many homeowners actually owing more on their homes than the properties are currently worth, many property owners are either unable to negotiate new terms with their lender or they do not feel that the home is worth the current mortgage price and they simply stop making their payments. The ensuing foreclosure process ultimately means that the property reverts back to the lender in these cases.

Lenders are in the business of loaning money, not collecting real estate. In fact, keeping foreclosed properties on their accounting books turns the asset into a liability. Therefore, in an effort to protect their best interests, lenders routinely auction or sell their real estate surpluses even if doing so means that they will sell these properties at far less than their retail value. Because they are not professional landlords, lenders do not want to be burdened with holding on to a property, trying to lease or sell it on a retail market, making repairs to the property or protecting it from vandals while it is vacant. Instead, these lenders prefer to offer these properties to investors for far less than the house’s current market value in order to stimulate a faster sale.

Wealthy investors, of course, are buying these properties with the intention of selling them for profit. Because this is their area of specialty, they will take the time to repair properties and list them on a retail market whereas banks will not. The state of the current economy, however, calls for lenders to sell more properties than usual and in order to keep from developing an overwhelming accounting liability, they have devised a way to unload several properties at a time. This process is now referred to as bulk REO investing.

These properties that are sold in bulk packages, sometimes referred to as ‘tapes’, often need a lot of cosmetic work, particularly if they’ve been vacant for some time or vandalized. But investors, realizing that they are buying these properties for sometimes pennies on the dollar, are all too willing to take the properties off of the lender’s hands sometimes sight unseen.

As bulk REO offerings become more common, investors are discovering a once in a lifetime opportunity to seize an opportunity to create enormous real estate wealth. Where the original homeowner unfortunately loses their home, confident investors have been able use a unique market to their maximum advantage.

The past few months have been one of the most turbulent fiscal periods that recent history has encountered. Today, the effects are still felt and many people are still reeling from the major recession and global financial economic crisis that has sprung on the country and all over the globe. Massive lay-offs have become the headline of so many newspapers and the words have been flashing on the television screen incessantly for several months now. One of the potential rays of light that people are now looking into in these financial dark ages is bulk REO investment. Before a successful foray into the bulk REO investment field, it is important to know the basics of the concept first.

Real estate owned

REOs means real estate owned. It is a real estate term that is used to describe a process that begins with a house that has been placed on mortgage or other types of loan. Once the loans have been unpaid for a given period of time, usually six months to one year in most banks, the bank will undergo a process that is known as foreclosure. The foreclosure is the technical term for when banks claim a property that has been given as a sort of collateral for previous loans made the homeowner who is also a borrower. Once the foreclosure has occurred and the house is legally entitled to the banks, the property can be considered REO.

Best investment today

Bulk REO buying is one of the ways that more and more people are investing in these financially pressing times. Because bulk REOs are actually liabilities that lessen the over-all value held by the lenders, such as the banks, most of these monetary institutions are only too keen to lose their hold over REOs and have these real estate exchanged for actual money. Many people are utilizing the cheap prices that REOs are auctioned off at to avail of cheap investments.

Important things to consider

If you, like many others who are looking for the silver lining amidst the stormy financial crisis, are thinking of investing in bulk REOs in order to provide some financial security for you and your family, one of the most important things to consider first is the REO source. Because bulk REOs have turned into a buzzword among the real estate and investment sectors, anyone vaguely acquainted or related to these sectors may have already heard of the benefits of bulk REOs. However, if you were to ask someone about bulk REOs, the most likely answer is that they do not really know anyone who directly can link you up with bulk REO sellers. Make sure that in your investment, you have a direct source to ensure that you will not be paying one middleman after the other – all for nothing, in the end.

Next, it is absolutely important to remember that in bulk REO investments, one of the most important things that you must have at hand is enough capital. While bulk REO investments are hands down one of the cheapest investment offers that can be offered to you – which makes it a justifiable phenomenon – you should still be aware that this will entail a good deal of capital in order to make the first investment sale that will lead to others.

There are several clearly defined processes that occur with a bulk REO transaction. In general, the processes occur on two levels, one affecting the mortgaged home owner, and on the other hand, the buyer who intends to acquire the bulk REO as investment. The first parts of the process begin with the homeowner. What happens is that a real estate property is placed under mortgage by a homeowner in order to increase the credit limit he has and to take in more loans. Once the payments fail to come, the bank will be able to issue foreclosure orders which will end up with the real estate owned by the bank.

Sourcing

On the other hand, the transaction is only beginning for the investor looking for bulk REOs. On this other side of the coin, the process begins with sourcing. One of the basic rules for bulk REO investments is to look for the best sources that will provide the least middlemen to lessen the cost of the investment. There are several source options to consider, among which are real estate agents who could have connections to a bank are. The short sale is another option for sourcing out the best bulk REO deals. In the short sale, the investor goes directly to the homeowner and purchases the property while still on the pre-foreclosure stage. Lastly, one of the best options is to check out the foreclosure auctions where banks attempt to get rid of REOs at low prices. Wherever you may find your REO source, one of the basic reminders to always keep in mind is to ensure that your REO source is nearby since this will provide you with the best deals and the deals which are also most manageable.

LOI

Once you have found out your source, the next step is to provide a letter of intent or LOI. This is the official letter that you will forward to the bank and which will contain all of the parameters for the bulk REO investment that you wish to make. Included in the letter is the price range that you can accommodate, as well as the types of property that you wish to purchase, and the location that you want your investments to be in.

Vetting

The next step in the bulk REO transaction is the vetting process. This is otherwise known as the critical examination which the bank will implement on the prospective bulk REO investor in order to assess whether the person or parties in question are capable of actually proceeding with the transaction. This is the bank’s way of ensuring some sort of safety, since bulk REO packaging involves its fair share of money. Here, the POF or proof of funds is also considered, since one of the most important parts of the bulk REO transaction is the ability of the prospective investor to provide proof of the capital that he will use to proceed with the transaction.

Once these steps are accomplished and the necessary papers signed, sealed, and delivered, the process of the bulk REO transactions is finished and the person can proceed to manage his bulk REO properties.

More and more people are looking into bulk REO investments as a way to alleviate their financial conditions. If you are one of those people who think that REOs are the best way to go, here is a guide to show you the essential guiding principles that you need to be acquainted with in order to start successfully with bulk REO investing.

The first and most essential step is to know the process. Bulk REOs are actually one of the best investments available today because they are cheap and provide some of the best yield options. With a good choice of bulk REO investment, the entrepreneur can actually multiply his investments many times over. Aside from this, because REOs are real estate investments, it is also one of the safest since real estate’s are one of the most stable investments that a person can acquire. However, if you do not know how a bulk REO comes into existence, and if you do not know the process of mortgaging, unpaid debts, foreclosures, and bank repossessions that lead to the birth of the bulk REO, you can easily fall trap to many advertisements that provide empty promises of REO benefits.

Find a good source

The next step is to find a good source. One of the biggest mistakes that bulk REO investing novices make is to utilize too many middlemen in the procurement of REO investments. This means that you actually lose a good deal of money just to pay the steps in the ladder to your REO investment deal, when in fact you can skip the ladder and try various alternatives that will lead you right to the REO investment.

Try auctions

Once a bank has a real estate property that is suitable for bulk REO packages, one of the options that a bank will often undertake is to have these property auctioned off right after the foreclosure. Again, the knowledge of the REO process is essential here, because with the proper background in REO the investor will know why banks want so much to place their repossessed real estate in auctions – because bulk REOs and other mortgaged properties are actually liabilities for the banks who cannot use these for transacting and for furthering their business. After all, it isn’t real estate that you withdraw from the ATM machine, but good hard currency.

Try short sales

Another option that you can look into for a quick start to bulk REO investing is to go directly to the source. There is a period called pre-foreclosure where the bank will soon begin the actual foreclosure procedures, but will give the home owner some time to sell the property himself in order to clear the accounts that he has made in the bank. Make the most of these events that are called short sales for receiving a bulk REO package at low costs. In short sales, because the home owner often does not have time to prepare the actual sale and cannot fully dictate the prices, you end up with better chances of having a cheap investment, minus the middleman.

Many people are checking out bulk REO investments as a way of building some financial security in these troubling times. For the average reader, however, you may not even be aware of what bulk REO investments means, especially because REO is an acronym that has erupted into contemporary popular usage only recently. If you are one of those people who want a way to navigate the confusing terminologies behind bulk REO investing, here are the basic terminologies that you need to be acquainted with.

What are Bulk REOs?

Bulk REOs is an acronym that stands for ‘real estate owned’ and is a term that is often used in the banking as well as the lending world. The process of bulk REOs is summed up in the event where a home that is placed on mortgage is placed on a foreclosure because of the homeowner’s inability to pay the mortgage or other dues that have been made with the real estate used as the collateral. Bulk has been often added to the REO acronym because investment in this field is most profitable when buying REOs in bulk, since these forms of real estate are much cheaper than others and are thus best when bought in bulk, the way wholesale buying is much more efficient than choosing to purchase goods from retailers. Some institutions will not allow individual REO buying.

What is a POF

The acronym stands for ‘proof of funds’ and is one of the basic requirements before you as an investor can begin your transactions to have a bulk REO package made. If you have ever bought a house, and you probably have since you are now looking at real estate as an investment option, you have probably realized that to purchase a single house alone requires the participation and help of many entities. Among those that may have been involved in the purchase of your home is the homeowner who intends to sell, you who intend to buy, a bank that may provide some of the funds that you need in order to purchase the house, a lawyer to settle the paperwork, and even an objective home inspector to act as a third party. The same goes with bulk REO investments. Because it entails much work, most banks will need a POF before proceeding.

What is Vetting?

Otherwise known as the critical examination or assessment part of the bulk REO buying process, it is necessary in order for the bank to assess not only the POF of the person who intends to buy the real estate, but also the actual willingness of the person to proceed with the transaction. After all, not everyone who has sufficient POF necessarily has the intent, and may simply be surveying his investment potentials.

What is an LOI?

Also known as the ‘letter of intent,’ this is the letter which the bank will entertain once you have undergone the vetting of the POF. The LOI will indicate what your exact bulk REO investment request entails, such as what type of property you are looking for, the price range that you desire, as well as the location that you will entertain.

What is a NCND?

The acronym stands for ‘non-circumvent, non-disclosure agreement’ and is a document signed by all the parties involved to secure the transaction. Here, the basic premise is that all parties involved in the transaction will not interfere with the proceedings of the REO investment and that inform

Bulk REO investments are one of the hottest ways that people are looking into in order to provide themselves with some sort of financial stability in these fiscally trying times. If you are looking at bulk REO investment as a way of getting a good investment deal, one of the things that you should understand about these types of transactions is the reason why banks prefer to sell bulk REOs. This is very important in order for you to have a better idea of why bulk REO investments can be profitable, and why they can also hide some tricks up its sleeve which a good bulk REO investor can easily avoid.

The REO process

Banks and bulk REO investments are intricately interlinked with one another because the REOs are actually the result of foreclosures done by banks on real estate that has not been paid by the homeowner. Today, one of the best assets that a person can have is a home, because it is one of the most highly valued private properties that a person can put on collateral. Because of this, many people put the home in mortgage agreements to act as a form of collateral in order for them to secure more credits and loans from lending institutions such as banks. In the event that person can no longer pay the mortgage, the bank can choose to foreclose the agreement and claim the real estate.

The catch

However, the banks actually prefer to have their accounts cleared by payments instead of through foreclosures. For most people, the widely held belief is that foreclosures are intentional acts of the banking institutions to cash in money. Contrary to popular belief, however, unpaid mortgages that has resulted in foreclosures as well as in bulk REOs actually works against the name of the bank, since as an institution the primary goal is to lend and retrieve the lent amounts in cash. Because of this, most real estate foreclosed by the banks is immediately sent to foreclosure auctions in order for the banks to get rid of the foreclosed property from its accounts as soon as possible. In the accounts, for more, these REOs show up not as assets but as liabilities.

The REO is born

Hence, when the bank is unable to find suitable buyers for the repossessed REO lots, the bank has several options, one of which is to personally package the bulk REOs for sale to people who need the bulk REO for investment options. The bank can also choose another alternative path that leads to the same goal – the use of real estate agents that will hook up the bank with a buyer of bulk REOs. Whatever means the banks make use of to rid themselves of real estate, the end result is that cheap property becomes available for lay people who are looking for easy investments.

In sum, one of the essential reasons why banks prefer to sell their bulk REOs is because the currency used by the bank as well as other lending institutions is hard cash and credit. This means that a bank does not actually add anything to its reserve of money available for lending when it keeps an REO property.

As with all buzzwords, many people jump first into the bandwagon before actually ascertaining the necessary steps to ensure that their foray into the world of bulk REO investing will be profitable.

There are many reasons why bulk REO buying has gained unprecedented popularity in today’s cash-starved and perfectly financially unstable times. Among all other types of investments, bulk REOs are perhaps the only type which provides some sort of possibility among the persons involved, since it is an investment procedure that benefits both the banks that have acquired unwanted property through disclosure, as well as the buyers who need cheap and accessible investment options. There are several mistakes that are often committed nonetheless, and if you want to dig into this niche investing goldmine, begin with knowledge of the common mistakes made so you can learn how to avoid them.

Qualifications

While bulk REO investments are one of the cheapest investments that a person today can afford, and while it is these investments which provide some of the largest margins for profit, it is still important to take note that there are qualifications that must be met when you are looking into bulk REO investments. This is obviously the case, because otherwise the entire world would have attacked bulk REO investments’and the large supply of those who have bulk REO investments would have made it a less than ideal investment.

One of the qualifications for bulk REO buying is capital. As with all investments, you need to have some funds ready to outlay in order to avail of your investment. This can take anywhere from a few hundred thousand dollars, to even a few million, all depending on the type of bulk REO that you are looking into.

Ad-wise

When it comes to bulk REO investments, it is of utmost importance to be aware that not everything advertised on the mass media is true. For instance, typing in the words ‘bulk REO investing’ in a search engine such as Google will land you thousands upon thousands of search results. This does not mean, however, that the search results will merit anything, especially when you consider the fact that bulk REO investments are actually private bank affairs that are very infrequently directly advertise on the internet and other forms of media. If you find one that claims to have a bulk REO package for you, beware.

Don’t look too far

One of the common mistakes that people make when checking for bulk REO investment options is that they survey too large a scope of land than is necessary. For instance, many people find themselves with contacts on properties that are several states away. This is a bad idea especially because most bulk REO options are easier to handle when you are close to the actual area where the transactions and the property itself is located, which will allow you to inspect the area. Be aware that these packages can sometimes come with heavily defaced or vandalized real estate properties, and in these cases, it is a good idea to be able to look into the bulk package you intend to buy before actually closing the deal.

If you are looking for real estate investment opportunities, you may already be familiar with the terms that are implied when someone decides to purchase bulk reos. If you are looking forward in order to invest in real estate owned bank properties, you have to get all the necessary information in order to learn about the advantages that are coming along with a reo property. There are many buying options when it comes to the real estate and you must consider the option that is going to work in your own case. The real estate possibilities seem to increase on a daily basis and the reo investment opportunities are to be looked into because it can provide you with a desirable investment.

Traditional ways of buying real estates can be left aside in order to make room for the bulk reos investments; these purchases may be the perfect solution for you in case that you are looking for an affordable investment. The reo property is a property that the bank was not able to sell through foreclosure auctions. The bank will organize a reo sale in order to sell that particular property or package of properties; the main characteristic of such a property is that it has a lower price than the ones that are usually to be found on the existing real estate market. The amount that is usually owed on a particular property is higher than the value of the property itself. When this situation happens, the bank will try to sell the property but it will not choose an auction in order to achieve this. On the contrary, the auctions are usually avoided because the prices are likely to be lower in the case of such auctions. Therefore, the property will be sold through a particular realtor.

If you want to purchase bulk reos, you have to pay attention to the conditions that are likely to be implied by every transaction. You will have to pay attention to the condition of the property itself because you will have to pay for all its future repairs. Many of these bank owned properties are likely to require extra repairs in order to be maintained. For instance, some of the reo properties can actually be fixed without larger amounts of money but others may require significant repairs that will come along with significant costs too.

Extensive renovation can also be taken into consideration because some of the reo properties may actually need it in order to allow you to move and live in. This type of renovation can actually limit all your profit that may margin the initial deal. You should not hurry to calculate the possible financial benefits because savings can be forgotten when it comes to expensive renovations. Therefore, every reo property is to be examined before rushing into buying it. The bulk reos require careful consideration because you have to make sure that you can afford all the possible repairs that may be implied by owning a reo property in its original state.

All the potential and current investors can actually find these properties by searching for the necessary resources; several sources are to be used in order to compare the existing offers. Even the banks are likely to provide the necessary search engines that may help you track down all the reo opportunities. People who want to purchase bulk reos will be allowed to look for them in various locations. Every searcher may use several criteria in order to find the wanted property; he can use the amenities, prices and various factors in order to narrow down all his possibilities when it comes to finding an available reo property. The selections can be narrowed down by the search engines that are provided by almost every bank and the searcher will be able to look for the suitable and profitable investment.

You can also choose to use the so called third party listings in order to track down the available reo properties; independent web sites are to be used in order to provide yourself with the necessary and updated data. But you also have to be cautious when it comes to using these web sites; many of them can actually be trusted but you have to make sure that your judgment is not influenced by their advertises. Best judgment is to be used in order to make a safe investment that will prove itself to be profitable in the future to come.

You will have to think about the offer that you are going to make to a particular bank in order to buy one of its reo properties; you have to be aware that every bank will respond with a counter offer and you will have to be prepared for this situation too. The future bargaining is to be planned in order to know how to get the price that is going to be acceptable for you. While negotiating, you have to be sure of all your conditions and you will also have to mention all the repairs that are likely to be needed in the case of a particular reo property. Upon buying, you will also get the necessary policy that comes along with the title insurance.

Countless changes have affected the current real estate market; real estate agents have witnessed many effects that were brought by these changes that have included the constant consolidation of all the servicing and lending institutions. A growing interrelation has been spotted between various sectors and even mortgage servicing has faced significant changes. One of the most important changes that have been spotted is the one related to the foreclosure process and the need to purchase bulk reos. The reo disposition has been modified thanks to the constant striving to make the most out of various tracking capabilities that have invaded the current market. These capabilities are fully designed in order to streamline and manage the entire process that is related to the reo property. Nowadays, the reo property market is the main focus when it comes to the reo managers because many agents try to access a particular property before the foreclosure sale.

The ability to compete in the bulk reos for sale market has led to a consistent strategy that has to be used by every reo manager in order to become successful in this area of interest. The networks are expanded in order to help all the people who are interested in purchasing the reo properties because people have to be aware of their existence on the current market. The providers may also use this expanded network in order to provide their clients with the necessary lists that will consist of all the properties that are available in a particular area.

The service capability has been enhanced thanks to the improved quality control that does not allow the buyers to be fooled by false advertisements that are not likely to fit the real estate reality. The companies are using reporting technologies that have developed during the last years and many tasks can be taken care of thanks to these technologies. For instance, if you want to purchase bulk reos, you can be sure that there are some services that will take care of all the maintenance costs. Even the insurance claims can be streamlined in the purchasing process.

There are many factors to be considered when it comes to bulk reos for sale; for instance, the current reo offers may be very tempting for every potential investor because these offers may also come along with standardized pricing structures or bulk-billing capabilities. These capabilities are greatly simplified and their accountability will also be magnified in order to face all the current demands. The national service provider is fully capable of taking care of all the services that are implied by a reo transaction because there is a whole new approach when it comes to the supposed barrier between the foreclosure departments and the reo ones. The larger servicing shops were confronted with this virtual barrier too; its presence has impeded the proper cooperation between the reo departments and the foreclosure ones thus leading to a huge waste of time and money. This barrier has also contributed to all the major losses that were suffered by the service provider.

Nowadays, the foreclosure specialists are working closely with all the reo vendors in order to maintain the quality of the provided services; the reo properties must be protected from adverse weather conditions, vandalism and deferred maintenance. Therefore, as soon as a reo property has become available on the market, the vendor will be fully responsible in order to secure that particular property. The vendors will also have to inspect these properties and they have to do it on a regular basis. The vendors will also become quite familiar with the present state of a particular property and they will be able to help the potential buyer who will purchase bulk reos.

The property condition is to be surveyed and the vendors have to make sure that the surrounding market and the property value are kept close enough in order to appeal to every potential investor. The foreclosure specialists will also have to develop the necessary internal information; the information base is to be taken care on a regular basis in order for the bulk reos for sale to be updated.