The weakness of the U.S. economy has given rise to the largest epidemic of foreclosures in American history. Yet as always, this challenge has given rise to a huge new opportunity for alert real estate investors.
The real estate investing strategy du jour is called ‘Bulk REO Investing‘ and is a real monster.
Consider with me, if you will, the fundamentals of the Bulk REO business.
Understanding of the foreclosure process is central to understanding Bulk REO investing.
As a home owner misses a payment or two, the lender sends the predictable barage of threatening letters and warnings. The lender directs the subsequent timing of the actual foreclosure proceedings. From that time through public auction is called ‘preforeclosure’.
When a defaulted property is placed up for auction, the foreclosure process is completed. If there are no buyers for the property at auction, the property is returned to the lender. The lender then categorizes the property as ‘Real Estate Owned’ - or ‘REO’ for short.
Lenders have no interest in owning property, and thus usually opt to list their REO properties with a local real estate broker in hopes of a retail sale. However, lenders are increasingly willing to take much less than their REO asset is actually worth. However, the purchase of a ‘package’ (or group) or REO properties is the trade-off for receiving such great prices.
The recession in the United States has yielded huge profits to real estate investors prepared to take advantage. 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 Salvatore Buscemi of Dandrew Partners, a New-York based hedge fund.
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