The Rise Of The Bulk REO Industry

The recession in the U.S. economy has resulted in more foreclosures than experienced by any other generation of Americans. 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. Let’s take a moment to analyze the basics of this incredibly lucrative business.

As a home owner misses a payment or two, the lender sends the predictable barage of threatening letters and warnings. Following a period of time determined by the lender, formal foreclosure proceedings begin. From that time through public auction is called ‘preforeclosure’.

Foreclosure is completed when the property is put up for auction. 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. But as a consequence of the weak economy, lenders are frequently selling their REO properties far below their actual value. Lenders are willing to do so in exchange for the buyer’s agreement to purchase a ‘package’ of REO’s rather than a single property.

The recession in the United States has yielded huge profits to real estate investors prepared to take advantage. The most successful Bulk REO Investors will have a well-respected source of funding for their transactions. 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. Sal 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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Hard money loans are so simple that anyone can obtain the loan. Sometimes, the lender does not even verify your income. For sure, the risk leads to higher interest rates. It is usual that interest rates would be higher on a hard money loan. After all, you can get one regardless of your credit history.

It is not surprising that this break might be a bit more costly. It takes a lot more risk for an investor to give this kind of loan.

Other material goods can be added to the loan, making it more appealing for a hard money lender.

A hard money lender discovers a value ratio is more attractive. But, the loan cannot amount to more than 65% of the cost of real estate.

Tennessee and New Jersey stop the practice of hard money loans. Nevertheless, this type of loan is considered in other regions and around the nation. Businesses don’t receive much safety under hard money loans. It might be an excellent idea for businesses to place their confidence in another type of loan.

One of the very best ways to use hard money loans is as “bridge financing” for short sale investment transactions. The way that works is as follows: A real estate investor will find a good short sale opportunity and simultaneously will identify a retail buyer for the property in question. Due to “title seasoning” and the policies of various lenders, it will be impossible for the investor to sell the property directly to the retail buyer and still capture the profit available in the transaction.

For that reason, real estate investors frequently use hard money lenders to fund “temporary acquisitions” so that they can purchase the short-sold property and then resell the property to the retail buyer. This is frequently more acceptable to a buyer’s lender and will make it possible for the transaction to be approved.

Hard money loans are also very frequently used for the funding of rehab/rebuild projects. For example, many real estate investors purchase severely damaged and/or fire-damaged properties for 25 cents or less on the dollar, and will fund the purchase and the reconstruction using a hard money loan.

As you can see, hard money loans can be a valuable tool in a real estate investor’s arsenal.

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