By now you have probably heard of the “mythical” Bulk REO Investing Market. Before we go any further, permit me to dedicate just a few lines to explain Bulk REO for the sake of those readers who are not yet familiar with this term.
The term REO refers to Real Estate property that has gone through the foreclosure process and the bank had to buy it back due to a lack of sale at the public auction. Gone are the days when investors used to fight each other over at the court steps searching for that bargain deal on an investment property.
Due to this shortage of court auction house buyers and the incredible rate of foreclosures across the US, an enormous amount of foreclosed inventory is being kicked back to the banks every day.
The unsold Real Estate inventory that the banks are now holding it’s labeled as Real Estate Owned or REO. These are considered toxic assets that the banks do not want to see in their books. They now become the responsibility of the institution’s asset manager, who is assigned the tedious task of getting these toxic assets off the bank’s books by selling them via the MLS (Multiple Listing Service).
These properties get listed on the MLS by local Realtors; normally the agent who performs the BPO (Brokers Price Opinion) or inspection for the selling bank gets the listing. Once a Realtor gets a few of these listings under their belt, they become known as an REO Agents. These REO Agents are considered and treated almost like “Rock Stars” by the local investors and wholesalers.
This “master plan” engineered by the lenders was supposed to work like clockwork, but the weak housing market and the banks getting greedier with the sales prices of these assets has turned out to be an ineffective sales method.
Comes now the mythical Bulk REO… when these foreclosed properties do not sell via the MLS and REO Agents, the banks package them into “tapes” or “packages” which are nothing more than a list of discounted properties offered for sale.
The Bulk REO tapes and NPN (non performing notes) packages are offered at steep discounts to investors and hedge funds. The properties get discounted as much as 50% or more of their BPO valuation or mortgage value in the case of the NPNs. This creates a huge “dream come true” opportunity to make a lot of money in a short period of time for the smart and funded investor.
– And this is where the dream ends and the nightmare begins…
What makes this incredible investing opportunity so great is also what makes it so horrible. The lucrative buzz generated by Bulk REO in the Real Estate and investing communities has brought forward a wave of newcomers into this arena.
Unfortunately these “joker brokers” have set up shop online and are blasting out and misrepresenting product that does not belong to them. They normally acquire these “bait” tapes by utilizing POFs (proof of funds) obtained by innocent third party investors who have the will and the means to take action, but lack the source for real product.
These joker brokers have made a circus of this most lucrative investing opportunity and have left a sour taste in the mouth of real investors in the industry.
Quick tip #1: as soon as you hear on the other side of the phone “I have a $500MM tape going for $50MM in CA”, don’t waste your breath to respond and hang up. These size tapes get traded between banks and institutions, never with independents. People who like to make others waste time by offering these ridiculous packages should really get a hobby doing something else. Not to mention the fact that banks do not discount product in CA, they don’t have to, it sells very well through the MLS.
Quick tip #2: ironic that I even joker gamimg this while you are reading this article online, but I believe in sticking to reality. Beware of online forums and blogs, especially in the non reputable sites that anyone can just post some quick lines. Not all that shines is gold and I get my content stolen more times that I care to remember. Don’t get me wrong, some forums and authors are the real deal; just make sure to conduct your due diligence.
Quick tip #3: and this is more common sense than anything, but we are all guilty of it at some point. Keep an eye out for unrealistic claims of profit and fortunes. Don’t fall for the “I have a direct connection to this bank or that bank”. There is no “connection”, banks sell to the highest bidder and they’re not playing these idiotic games.
Quick tip #4: if you receive an email from a joker broker, pay attention to the structure of their writing, their spelling, grammar, etc. Scammers never went to school; instead they cheat their way through life. This one is by no means a solid tip; I have seen some scammers that steal someone else’s writing to conduct their schemes.
Quick tip #5: any reputable Bulk REO trader or mandate will not deal as an “affiliate” of a corporation. These are usually internet marketers being in a place where they do not belong. These are the ones that use your POF to go shopping for tapes to sell.
Quick tip #6: more times than none, real companies will have product in the $1MM to $10MM. Once in a while they may have something (such as commercial property) north of that, but it’s not common practice. Like with any other business, use your common sense and as I always preach: if it sounds too good to be true… you know the rest.