By now, you’ve probably heard of the “mythical” bulk REO investment market. Before I continue, let me spend just a few lines explaining Bulk REO for those readers who are not yet familiar with this term.
The term REO refers to real estate that has gone through the foreclosure process and had to be bought back by the bank due to failure to sell at public auction. Gone are the days when investors used to fight each other in short steps in search of that bargain on an investment property.
Due to this dearth of court auction house buyers and the incredible rate of foreclosures in the US, an enormous amount of repossessed inventory is returned to banks every day.
Unsold Real Estate inventory now held by banks is labeled Real Estate Property or REO. These are considered toxic assets that banks do not want to see on their books. Now they become the responsibility of the institution’s asset manager, who is assigned the tedious task of removing these toxic assets from the bank’s books by selling them through the MLS (Multiple Listing Service).
These properties are listed on the MLS by local realtors; Typically, the agent doing the BPO (Broker Price Opinion) or inspection for the selling bank obtains the quote. Once a real estate agent gets some of these listings under their belt, they are known as REO agents. These REO agents are considered and treated almost like “rock stars” by local investors and wholesalers.
This “master plan” devised by lenders was supposed to run like clockwork, but the weak real estate market and banks increasingly greedy with the sale prices of these assets have proven to be an ineffective sales method.
Now comes the mythical Bulk REO… when these foreclosed properties are not sold through the MLS and REO Agents, the banks pack them into “ribbons” or “packages” which are nothing more than a list of properties on offer at the sale.
Bulk REO and NPN (Non Yield Note) tape packages are offered at deep discounts to investors and hedge funds. Properties are discounted by up to 50% or more of their BPO valuation or mortgage value in the case of NPNs. This creates a great “dream come true” opportunity to make a lot of money in a short period of time for the savvy, funded investor.
– And this is where the dream ends and the nightmare begins…
What makes this incredible investment opportunity so great is also what makes it so horrible. The lucrative buzz generated by Bulk REO in the real estate and investment communities has brought a wave of newcomers to this field.
Unfortunately, these “joke brokers” have gone online and are advertising and misrepresenting products that do not belong to them. They typically acquire these “bait” tapes using POFs (proof of funds) obtained by innocent third-party investors who have the will and means to act, but lack the source of the actual product.
These prankster brokers have made a circus out of this most lucrative investment opportunity and have left a sour taste in the mouths of real investors in the industry.
Quick tip #1: As soon as you hear on the other end of the phone “I have a $500MM tape that costs $50MM in CA”, don’t waste your breath answering and hanging up. These size tapes are exchanged between banks and institutions, never with independents. People who like to waste their time by offering these ridiculous packages should really have a hobby doing something else. Not to mention the fact that banks don’t discount the product in CA, they don’t have to, it sells very well through the MLS.
Quick tip #2: It’s ironic that I even mention this while reading this article online, but I believe in sticking to reality. Beware of online forums and blogs, especially unreliable sites where anyone can post a few quick lines. All that glitters is not gold and my content gets stolen more times than I care to remember. Don’t get me wrong, some forums and authors are authentic; just make sure you do your due diligence.
Quick tip #3: and this is more common sense than anything else, but we are all guilty of it at some point. Be on the lookout for unrealistic claims of earnings and fortunes. Don’t be fooled by “I have a direct connection to this bank or that bank.” There is no “connection”, the banks sell to the highest bidder and they are not playing these idiotic games.
Quick tip #4: If you receive an email from a prankster broker, pay attention to the structure of their writing, their spelling, grammar, etc. The scammers never went to school; instead, they cheat their way through life. This is by no means a solid tip; I have seen some scammers who steal someone else’s writing to carry out their schemes.
Quick tip #5: Any reputable bulk REO trader or mandate will not trade as an “affiliate” of a corporation. These are usually internet marketers who are in a place where they don’t belong. These are the ones who use their POF to go buy tapes to sell.
Quick tip #6: more times than not, real companies will have products in the $1MM to $10MM range. Occasionally they may have something (such as commercial property) beyond that, but it’s not common practice. As 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.
The good news is that if you are interested and able to invest in Bulk REO and NPN packages, you can make a fortune in no time. There are some companies that sell real products today (or, as we say in our industry, “ready-to-recall”), but you have to be very careful who you trust and who you do business with. Now go change your life by investing in REO in bulk.
