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How does Bulk REO Investing Work?

By Duncan Wierman

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Published: 03Feb2010
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There is an myth that needs to be dispelled. The myth going around is that "large bulk REO tapes of $1 billion are readily available". "Ask yourself this: If you were a bank and had such a valuable asset, would you throw it out on the internet to see if anyone would buy it? NO.And neither will any bank act in this manner.

I would also like to advise that you should also stay away from anyone "advertising" or claiming they "have the product" you need or are "direct with the compiler", on any real estate forum or any online classified advertising site. They don't have product and they are not the bank representative.

In the Bulk REO business, there is a process or "protocol" which always must be adhered to. If you don't know the rules of bulk REO investing, have fun wasting your time. It is essential that you are "connected" to the source as direct as possible, or you will be involved in the biggest exercise in futility known as..."the daisy chain". There are a number of ways in which to make money with Bulk REO Investing.

The liquidation of "Bulk" REO assets is typically handled by an "Asset Manager". Most times internally to the institution or servicer. They will typically deliver a pool ($1 Million to $100 Million) of properties at 50% to 80% of their true value. While the pricing has always been about a percentage, getting to that list of properties is another story. The reason the bulk reo pools are elusive, is simply because they are purchased by well positioned investors before anyone "sees" the list.

Investors must be ready to purchase these pools at a moment's notice, which means you need to have your buyer's prepared. The REO process is extremely competitive. New investors to the business will have great difficulties in securing packages if they don't know "how" the process works. The buyer MUST be identified upfront on the initial LOI or Letter of intent. The seller must know "who" they are going to be doing business with from the beginning because of the US law in regards to the U.S. Patriot Act. \

If you cannot get past the identification disclosure issue with the broker or whoever, then you cannot move forward. Another reason to that critical item is the new "internal" watch lists the banks have in place due to the unbelievable level of fraud attempting to be initiated.

Buyers must be realistic. You need to be working with buyers who clearly understand the current market and price points. Much of the frustration in the bulk reo property investing business occurs when large buyers with deep pockets try to maneuver to get to the front of the line to demand the seller to give the package to them by a certain time and price point. You will find that these types of buyers want the best assets for next to nothing.

Yes, the real estate market is correcting but then again, the buyers must be realistic. This type of behavior does not sit well with banks. These types of buyers/investors will never secure product and more than likely will get themselves blacklisted. This is one of the "hot" topics with bankers and private sellers right now. They are sick and tired of arrogant buyers, uneducated brokers and consultants.

Financial Performance Buyer's MUST have their financing in order and be able to proof up to get portfolio pools of assets. Cash is still king and a cash buyer will trump any buyer that needs to use credit. Hard money lenders, or Transactional Funding from sketchy lending sources for new investor/buyers does not impress sellers and will more than likely lessen the buyer's chance of securing a portfolio pool of REO?s.

Recently I have even seen one sketchy company offering new investors a 100 million Proof of Funds letter just to entice them to buy their website investing system. Their proof of funds has already been blacklisted.

The Seller is ultimately the one at the end of the day who decides "who" they will do business with. The Seller will be trading trust deeds for cash and they choose who they will conduct business with. Unfortunately, the buyer's and involved parties are not in control of the bank?s decision. So let's all be clear on that...the seller's are in control of who they sell their asset pools to and at what price!

Duncan Wierman is the founding members of "Bank REO Property Deals. His company is connecting sellers of verifiable" product with qualified buyers. If you are interested in learning more about Bulk REO investing, he created a insiders training guide to help you through the maze getting started, all the way through the closing process. http://www.BulkReoPropertyInvesting.com/

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