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Bulk REO Investment 101 For Beginners
By Vic Hurlstorm | December 10, 2009
With more foreclosures now than ever before, America’s weak real estate market seems to set new dismal records each month. However, opportunistic real estate investment professionals are turning the recession into great profits with a bit of creativity.
‘Bulk REO Investing’ is the name of the new strategy, and it’s captured the attention of many well-heeled investors.
Consider with me, if you will, the fundamentals of the Bulk REO business.
To understand Bulk REO investing is to understand the foreclosure process.
As a borrower becomes increasingly behind in his mortgage, the lender regularly calls and writes the borrower with default warnings and threats. 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 defaulted property is auctioned. If there are no buyers at the foreclosure auction, the lender regains title to the property. The designation of ‘REO’ (Real Estate Owned) is then attached to the foreclosed 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. But the price of receiving such great pricing is the need to purchase multiple REO properties (a ‘package’) rather than individual properties.
These REO packages represent the potential to acquire huge amounts of equity for savvy real estate investors. Bulk REO Investors are most successful when they have a well-established source of funding for their REO packages. There are many sources of funding for these transasactions including: hard money and commercial financing, as well as non conventional sources such as hedge funds and private investors. Additionally, one man is becoming very well known in the field of bulk REO investing, and his name is Salvatore Bushemi of Dandrew Partners, a hedge fund in New York.
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