Bulk REO Trading

What is Bulk REO?

First you need to understand how Foreclosures work:

When a property goes to foreclosure 2 things can happen

a)      Someone bids for at least the lender’s asking price on the property and “wins” the property;

b)      If there are no bids, the lender is the highest bidder and they end up with the property.

If the property goes back to the bank, it is assigned to the REO --Real Estate Owned --  department, which is responsible for having the property sold and taken off the books as a non performing asset.

Banks do not want REO’s – they don’t want the carrying costs and maintenance issues. They want to convert these assets to cash as soon as possible.

Banks are also concerned with the financial investors and industry regulators – they need to make their books look good, especially smaller banks and credit union.

c)      The REO department usually assigns these properties to already established real estate agents, who will try to sell them at 60 cents on the dollar or less. If they don’t sell during a listing term (usually 3 to 6 months,) the bank will consider selling them in bulk to an investor at 30 cents on the dollar or less.

Reasons to buy Bulk REO Properties

Large profits – bulk purchases of REO properties also mean bulk sales of the same. By buying these packages at 30 cents on the dollar. (usually 10 or more properties) and selling them at 50 cents or more, it can amount to a good margin spread.

Fast turnaround – while short sales take a while to go through with all the problems and glitches along the way, bulk REO purchases move quickly and at specified terms upfront, therefore not leaving much for unforeseen problems.

Very little risk – most likely bulk REOs will be purchased and flipped or assigned to another investor (a hedge fund investor,) therefore no personal capital is needed for the transaction.

Simple Transactions – in spite of the value on paper of a bulk REO package, it implies a simple transaction with simple rules and no much paperwork.