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Bulk REO Investing Gaining Ground for Savvy Real Estate Investors

By Duncan Wierman

Republish: EasyPublish™ Published: 20May2009 Word count: 602 Viewed: 2352 time(s) Get Free Content For Your Site

As the U.S. economy struggles to make a comeback, the real estate foreclosure market is still a ripe place for wealthy investors to do what they do best. Unfortunately, foreclosed homes are at an all time high, thus creating an environment for savvy investors to make a tremendous profit. Because there is such an expanding surplus of foreclosed properties, a new investment opportunity known as bulk REO investing has gained popularity as many scramble to seize this very lucrative investing moment.

REO stands for Real Estate Owned. Bulk REO investing may be a relatively new description, but it is based on an old concept: buying multiple foreclosed properties. To understand how this investing niche works, it's important to first understand a little about the foreclosure market and why it's such a rewarding opportunity for investors.

When a property owner fails to pay their mortgage payments, the bank or lender that owns the mortgage takes possession of the property. Depending upon who the lender is, homeowners are sometimes able to modify their loan payments in an attempt to catch up on their arrearages and continue to occupy their home. However, with a record number of jobs being currently being lost and a trend that has left many homeowners actually owing more on their homes than the properties are currently worth, many property owners are either unable to negotiate new terms with their lender or they do not feel that the home is worth the current mortgage price and they simply stop making their payments. The ensuing foreclosure process ultimately means that the property reverts back to the lender in these cases.

Lenders are in the business of loaning money, not collecting real estate. In fact, keeping foreclosed properties on their accounting books turns the asset into a liability. Therefore, in an effort to protect their best interests, lenders routinely auction or sell their real estate surpluses even if doing so means that they will sell these properties at far less than their retail value. Because they are not professional landlords, lenders do not want to be burdened with holding on to a property, trying to lease or sell it on a retail market, making repairs to the property or protecting it from vandals while it is vacant. Instead, these lenders prefer to offer these properties to investors for far less than the house's current market value in order to stimulate a faster sale.

Wealthy investors, of course, are buying these properties with the intention of selling them for profit. Because this is their area of specialty, they will take the time to repair properties and list them on a retail market whereas banks will not. The state of the current economy, however, calls for lenders to sell more properties than usual and in order to keep from developing an overwhelming accounting liability, they have devised a way to unload several properties at a time. This process is now referred to as bulk REO investing.

These properties that are sold in bulk packages, sometimes referred to as 'tapes', often need a lot of cosmetic work, particularly if they've been vacant for some time or vandalized. But investors, realizing that they are buying these properties for sometimes pennies on the dollar, are all too willing to take the properties off of the lender's hands sometimes sight unseen.

As bulk REO offerings become more common, investors are discovering a once in a lifetime opportunity to seize an opportunity to create enormous real estate wealth. Where the original homeowner unfortunately loses their home, confident investors have been able use a unique market to their maximum advantage.

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