There is a lot that goes into a bulk REO purchase. You can’t just walk into a bank or pick up the phone and call a bulk REO seller and think the deal will be done in a day or two. Actually if that is the thought process you have then a bulk REO purchase is not for you, you’d do better buying a single property through a real estate agent. A bulk REO purchase is a big deal; it means big money, potentially big profit and requires a lot of research.
If you are looking into making a bulk REO purchase it will be assumed that you know something about real estate. You are familiar with terms such as LTV and BPO and that you know if at all possible you should go for the BPO over the LTV when talking about package prices. For starters, if you are dealing with a bank a bulk REO purchase is going to cost you around a $100M for the smallest package. A package being the homes you are going to acquire, obviously by the price it is going to be a significant number of homes. If you think about it like this, each home has a value of $300K and you are getting them at 50% or $150K each… for a $100M package that is 650 properties.
When you place your order for the package with the bank you get to tell them what you want included in the package as far as where the properties are located, the price range for the properties and the type of property ie single family, multi-family, attached, commercial, etc. This is a plus of dealing with a bank that has numerous properties. If you are dealing with a source that will create a smaller package for you it is slightly more difficult to specify the types of properties you want and get them.
This also means that you are doing your homework. You need to know something about the properties you are asking for. You do have the option of inspecting the home, but if there are 650 homes in the bulk REO portfolio it will take you some time to see them all. This is why you need to know about the areas you are acquiring homes, make sure you get out and see some of them, talk to the bank and a realtor to see if there are any pictures of the homes as they stand right now. This is key because you are getting the properties in “as is” condition. A home in a million dollar neighborhood that has a roof that is caving in and half the windows are missing is not going to net you a million dollars and you don’t want to pay a half a million dollars for a rundown falling apart heap.
Make sure you have all the paperwork that is going to be needed to move the transaction along as well. In most cases the bank is going to want to see a Proof of Funds letter, this is a document that verifies you have the money to close the deal. You will also probably sign a Non-Disclosure, Non-Circumvent agreement which basically says you will not cut out the agent that helped connect you to the seller. There is also the Letter of Intent, this is a piece of paper that tells the seller what your intentions are, sometimes it tells the bank what types of properties you are looking for but generally it states that you are interested in making a bulk REO purchase.
Bulk REO is big money, and it is worth the investment for many real estate investors. If you don’t have the bank roll to cover a $100M bulk REO package consider finding REO investors that are looking to unload some of their properties or you can find other investors that are looking for partners to make that bulk REO purchase.
Tags: buying REO properties bulk, condo conversions, lending institutions, real estate investors, REO portfolios
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