Just a few years ago, most real estate investors had never heard of bulk REO investing, and very few investors had the option of participating in this type of investing because the funds needed for it were of such a grand magnitude. Now, however, as a foreclosure “tsunami” threatens to engulf many major lenders, banks are becoming a little more flexible in how they sell their real estate and, as a result, more real estate investors are finding that it is possible to be involved in “bulk” deals that involve large numbers of properties.
“REO” stands for real estate owned. REOs are properties that are owned by banks. Since lenders want to make money on loans by charging interest, not spend money maintaining properties, one of their main interests is selling off REO properties. However, since those properties have been seized for non-payment on a loan, lenders also want to get enough money out of the properties to recoup at least part of the loss. If you were to purchase a single REO property from a lender, they are going to be very focused on getting as much out of the property – and you – as possible. As a result, you likely will not get the property for much below market value. On the other hand, if you were to offer to buy 10, 20, 50 or even hundreds of REO properties at once from that lender, that would give the lender a chance to clear out the books. As a result, they will be more interested in working with you to give you a great “package deal” that also enables them to make the numbers “work” in their books.
Banks used to only be interested in bulk REO deals if the buyer in question was capable of buying hundreds of houses. As a result, most investors needed some type of backing from a hedge fund or other entity. Now, however, lenders have so many homes on the books that they are willing to consider much smaller packages of homes – sometimes even fewer than 10. Local lenders may go down to two or three if the price is right, meaning that bulk REO investing has become far more accessible to individual real estate investors than it has ever been before. Bulk REO investing offers the opportunities to buy many properties at once, then cherry pick off the best and sell the rest. Some investors buy multiple homes and rent them out, while commercial bulk REO investors buy entire buildings of retail, office, resort or industrial space. There are many fine points to the bulk REO investing process, so you definitely need training and legal advice should you choose to follow this investment route. Make sure that your instructor has a solid history of bulk REO transactions and that you can get a proof of funds – either from your own bank or from another funding source – so that you can legitimately negotiate transactions.