The recession in the U.S. economy has resulted in more foreclosures than experienced by any other generation of Americans. Yet as always, this challenge has given rise to a huge new opportunity for alert real estate investors.
‘Bulk REO Investing’ is the name of the new strategy, and it’s captured the attention of many well-heeled investors.
The basis of the Bulk REO business is foreclosures, so let’s analyze the foreclosure process now.
To understand investing in Bulk REO, you have to understand the foreclosure process.
A home owner who misses one or more mortgage payments is faced with an ever-increasing volume of threatening correspondence from their lender. Following a period of time determined by the lender, formal foreclosure proceedings begin. The ‘pre-foreclosure’ time starts with filing of foreclosure paperwork and concludes at public auction.
When a defaulted property is placed up for auction, the foreclosure process is completed. Ownership of the property is returned to the lender if the property is not sold at auction. The lender then categorizes the property as ‘Real Estate Owned’ - or ‘REO’ for short.
Local real estate agents are usually used to resale REO properties at retail price to the general public. But as a consequence of the weak economy, lenders are frequently selling their REO properties far below their actual value. Lenders are willing to do so in exchange for the buyer’s agreement to purchase a ‘package’ of REO’s rather than a single property.
These REO packages represent the potential to acquire huge amounts of equity for savvy real estate investors. REO packages are easiest to buy and sell with a well regarded source of financing in place. Some sources of funding for these transactions are: personal funds, hard money lenders, commercial lenders and non-conventional sources such as private investors and hedge funds. Additionally, one man is becoming very well known in the field of bulk REO investing, and his name is Sal Bushemi of Dandrew Capital Partners, a New-York based hedge fund.
