By: Kenny Rushing
Lucky for you, I have been one of the few investors in the country who has actually closed bulk REO deals and play in this market everyday. I like doing $1 deals with Bulk REO’s just as much as I do when buying and selling single REO homes.
However, I like doing bulk REO deals more because the profit potentials are much bigger.
In addition, the bulk REO business is far less competitive than buying single REO homes from REO agents. Most investors don’t understand how to make money with Bulk REO’s, or they think buying bulk REO packages are too risky.
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“Isn’t Bulk REO Investing Too Risky?”
When you buy a pool of bulk REO assets from a bank, you are buying “sight unseen”. This is enough to scare away most traditional investors. Don’t worry, you’re about to discover how to take the risk out of buying Bulk REO’s.
Traditionally, most real estate investors are used to going out and physically inspecting properties themselves. I refer to these people as “touch & feel” investors. However, when you buy Bulk REO homes from banks, “touching and feeling” these homes are impossible to do when you’re contracting to buy 30-500 homes or more scattered across the country. Therefore, you have to depend on others to go out in each local market and inspect the properties for you.
I have been active doing Bulk REO deals for 15 months now. Traditionally, I am a “touch and feel” type of investor like many of my peers and it was hard for me to adapt to buying properties “sight unseen” and not inspecting a property before I contracted to buy. For that reason alone, I had no choice but to develop a system that would allow me to buy and sell Bulk REO deals without ever looking at a single property but still feel comfortable along the way.
“Why Are Banks Selling Off Bulk REOs?”
Due to the U.S. economic meltdown and foreclosure crisis, banks across the country are failing. This has created a unique opportunity to buy properties directly from banks like never before. Today, banks all across America have BILLIONS of dollars in defaulted loans. As I write this report, there are over 1,905,723 foreclosure filings right now. If foreclosure filings continue at this pace we would have exceeded the 3 million foreclosure filings the U.S had in 2008.
When a borrower is in default of their mortgage note, the bank will move to foreclose on their home. The mortgage note is now considered non- performing and becomes a liability on the banks balance sheets. Immediately the bank will hire an attorney to begin the foreclosure process.
In addition to attorney’s fees, if the homeowner in default fails to pay the hazardous insurance policy, the property taxes and neglects to maintain the property, the bank will have to step in and pay those expenses as well.
Some banks have thousands of these properties and the financial burden is enormous. At this point the bank wants nothing more but to get rid of this money pit!
The timeline to foreclose on a property will depend on if the property is located in a judiciary or non-judiciary State as we discussed in the Foreclosure Frenzy article. In a non-judiciary State, the process to foreclose is much faster and can be done in 2-3 months, while in a judiciary State the process normally takes about 6-12 months.
Once the court has issued a “Notice of Judgment” in a judiciary State or a “Notice of Trustee Sale” in a non-judiciary State, the bank will move to sell the property at the foreclosure auction. The foreclosure auction is normally handled by the local Sheriff’s office. At auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the sale. If there are no bids higher than the opening bid, the property will be purchased by the attorney working on behalf of the bank.
If this occurs, and the opening bid is not met, the property is deemed a REO or “Real Estate Owned”. This typically occurs because many of the properties up for sale at foreclosure auctions are worth less than the total amount owed to the bank or lender.
Banks have become accustomed to using this process to sell off foreclosure homes to remove them from their books. These homes are considered “toxic-assets”. Today, due to the U.S. foreclosure frenzy, banks are plagued with these toxic-assets while the courts that handle these foreclosure proceedings are backed up making the foreclosure process take longer then ever before.
With Federal Regulators breathing down the throats of banks to do something about all the defaulted loans on their books, banks are now seeking other non-traditional ways to get rid of their toxic assets……such as selling their non-performing notes and pools of Bulk REO properties to investors.
This new approach of bundling up Bulk REO properties and selling them at steep discounts saves the banks the headache of continuing to pay for the property taxes, hazardous insurance, utilities, maintenance cost and more importantly, removes the toxic assets from the banks balance sheets enabling them to stay in compliance with Federal and State bank regulations.
“What Are Bulk REOs?”
Bulk REO’s are foreclosed properties that banks own. Some of the homes may be currently listed with an Agent while others may not. Banks are not in the property management business. They are in the lending business and want these toxic assets off their books. Therefore, this has created a tremendous opportunity for investors who know how to play in this market.
A bulk package is also referred to as a tape. These tapes contain tens or hundreds (sometimes thousands) of REO properties. A tape is nothing more than an excel spreadsheet list of properties.
“Can I Do $1 Deals With Bulk REOs?“
Yes, in fact you can get started trading Bulk REO deals without any money. Let’s learn exactly how this can be done.
There are several ways to make money buying and selling bulk REO’s. Your options are either:
- Brokering Bulk REO Deals
- Buying Bulk REO Properties from Banks
Brokering Bulk REO Deals…
Brokering Bulk REO deals is much easier to do than buying them from banks. A Bulk REO Broker or Trader (some people refer to them also as Syndicators) acts as a middleman between the seller of a Bulk REO tape and a buyer. It is important to note that a professional license is NOT required to broker Bulk REO deals.
The great part about brokering Bulk REO deals is that you don’t have to use “Cash or Credit” to get started. Nor do you need an office, staff or car for that matter and you can do it part-time from the comfort of your home. Brokering Bulk REO deals only requires that you have a telephone, fax machine and a computer.
- Computer: Will be used to network with other Bulk REO Brokers, Bankers and Investors online.
- Telephone: Will be used to communicate offline with the people you network with online.
- Fax Machine: Used to send and receive all the documents and contracts when doing these deals.
“How Do I Get Started Brokering Bulk REOs?”
The first thing you have to do is understand the role of a Bulk REO Broker so you can find your niche to play. There are two types of Bulk REO Brokers. The first is a Seller’s Rep and the other is a Buyers Rep.
A Buyer’s Rep works exclusively with buyers who are looking to take down tapes. They match their buyers with sellers of Bulk REO tapes and charge a fee for their efforts for finding product for their buyer to purchase.
A Seller’s Rep works exclusively with sellers looking to sell Bulk REO tapes. The seller may be a bank, private equity fund, hedge fund or a private investor. The seller’s rep will get paid a fee for their efforts at finding a buyer to buy the tape from the seller.
Some Brokers work as both buyer and seller reps. The hat they wear will depend on what lead source they have. If they have a source of product for sale, they may become the seller’s rep. If they have a serious buyer of Bulk REO product they may wear the hat of the buyer’s rep.
I have acted as both the buyer and seller rep and made money. However, I prefer to wear the seller’s rep hat because my strength is creating marketing advertisements that sell Bulk REO product. Last month I closed on a small Bulk REO deal and made $25,000 working as a seller’s rep. It only took 4 hours of work to get this deal done.
Let me explain how this deal worked:
- Step 1 – Find The Product
A Bulk REO private seller called me about a small 24 home nationwide tape he had just taken down from a bank. He was asking $300,000 for the tape.
- Step 2 – Find A Buyer
I passed on taking down the tape myself but decided to call a buyer I knew who was interested in taking down a nationwide tape. My buyer was very interested.
- Step 3 – Arrange A Conference Call
I arranged for my buyer and seller to talk about the particulars of the deal. The buyer provided verifiable Proof of Funds (POF) to my seller and the tape was sent to him via email.
- Step 4 – Due Diligence
The buyer conducted his due diligence in 3 days and moved forward to take down the tape.
- Step 5 – Master Fee Agreement
The seller and I signed the Master Fee Agreement to pay me the difference between the seller’s price of $300,000 to me and my sale price to my buyer for $325,000.
- Step 6 – Contract & Closing
The buyer executed a contract and made arrangements to close the next day. Once the funds were sent to my seller’s Title Agent, I picked up a check for $25,000.
The worst part about brokering Bulk REO deals is finding REAL buyers and sellers. Most of my time is spent filtering through the fake buyers and sellers of Bulk REO’s. There are lots of fake buyers and sellers of Bulk REO who care nothing more than to waste your time.
As a Broker you have to learn how to distinguish between the real buyers and sellers of Bulk REO from the fake. There is an art to this and the better you are at it, the fewer headaches you will have, the less time you will waste and ultimately the more money you will make.
~ Kenny Rushing, House Hustler
About Kenny Rushing…
Kenny Rushing is a remarkable tale of a life turned around. A resident of Tampa, Kenny is best known for the moving story of his humble and troubled beginnings, and his phenomenal success as a real estate investor – in spite of the seemingly insurmountable odds he faced. He is a successful real estate investor, civic leader and devoted philanthropist. His company, Rehabbers Superstore, Inc., now grosses millions of dollars per year through real estate transactions and investments. Kenny Rushing is a living testament that: If KEN Can Do It – So KEN You!
Everything you mentioned in this post makes total sense and is very clear to understand. I have been involved in buying single REO homes. My understanding is that I am probably about three levels down from what you are describing. My main question would be “how do I move UP the chain?” Thanks.George Eckenrode
How do you ever get the Seller to give a price expectation and the Buyer to make an bid?
In my expirence the Seller wants a bid from the Buyer before giving price expectations
and the Buyer wants an expectation before making a bid. Nobody wants to go first. This
is a real problem when dealing direct with a bank.
Hey Kenny. Are you selling bulk notes also?
As someone who has been involved in hundreds of bulk REO deals that never closed (ranging from as small as $300K packages to as large as $500M packages from hedge funds), I can tell you that the statement that there are a lot of fake buyers and fake sellers is an understatement. I would say MOST are “buyers” that don’t have the money to buy and “sellers” that don’t have title to the properties on the tape. Because of this, any real buyers and sellers have become totally paranoid in the last couple of years, and they wind up implementing procedures where the other has to jump through hoops instead of getting the deal done. Needless to say the deal doesn’t go anywhere in that case.
Also, in theory, the banks should want to get rid of these assets off their books so they can keep borrowing the money they usually do from the Federal Reserve in order to do normal business. However, according to a bank rep I just spoke to last night, they also try to hide a lot of these assets off the books, so that the public and regulators don’t realize how big the trouble is that they are really in. Because of this, they are also holding (more like hiding/hoarding) the assets instead of selling them off. I don’t agree with the bank’s strategy, as selling it off makes a lot more sense to anyone who’s sane, but no one ever said the banking industry was that practical!
I am having trouble understanding the logic of swigning the master fee agreement after the buyer and seller have had contact if your time line is correct. What is to prevent them from circumventing the dealmaker and avoiding any payment whatsoever if there is no agreement already in effect?
…Hello! thank you very much for such valuabe info. and really helpful. Thanks again! Elson L Dasilva…
You are correct, and unfortunately that does happen sometimes. A key is to know your seller (or your buyer, depending on what side you are on) and have a relationship with them so you don’t have to worry about things like that. Personally I only deal with local buyers now (after dealing with both sellers and buyers across the U.S. and even some internationally) who I can sit down with and meet in person. Of course now that I have what I know to be “real” buyers, the few real sellers I was dealing with don’t necessarily supply what they are specifically looking for. The Bulk REO industry is a fun one!
Get ready to waste a bunch of time, only to get circumvented in the end. Been working this market for over two years and my two partners over 5yrs. I have seen and heard it all in this business. I also agree with HopefulHomes. Way better deals in notes. Banks are not letting go of these REO assets as cheap as people tell you. Be careful with anyone selling you a product or a dream of making huge money in this market.
how do you find REO bulk tapes/deals? Where do you find buyers? If you want to purchase a bulk deal how do you get it funded?
How do you get others to check out all the properties if you can’t? Do you pay them? How much? How can you make sure you trust what they are saying?
What kind of discount is “typical” (not what is possible, what is typical. Most gurus use the “possible” number to lure people in) for bulk REO deals. Of the ones that are listed on the MLS, how much of a discount are you getting off the retail asking price?
How would you recommend getting started in this REI area for someone who has no contacts with the banks that sell bulk reos or no contacts with any buyers of bulk REOs? What things are necessary?
What does the contract with your buyer/seller say in order to get the assignment fee? Do banks know that your “brokering” the deal for them, or do they think you might buy it, but you really are “assigning” it to another person?
When your brokering for the seller (like in your $300k example) do you tell your buyer that the price is $325k and its non-negotiable? Or do you start at $350,000 and let them talk you down to $325K?
If the bank is looking for $300,000 for a tape, is this a fixed price or are they open to offers? If they are open to offers, how much of a discount do you think they are willing to take? (I know it all depends on the bank, the package, etc, but I’m looking for an average or ballpark number from his experience).
Sounds GOOD Kenny. Me and Kenny Have closed 2 deals together. Made 7k should have made 21k but I included some contacts of mine who set the ball rolling. I keep control of the deal with the serious buyer talking to Kenny It takes exactly what he says in this article. But only the strong determined minded people will make it. You cannot waste your time with chains(daisy chains) a lot of people in the way. Every contact is not going to make you money. you can tell who is a real buyer and seller over time but it will take a few blows to your self esteem to be let down until you really understand. I can tell if a buyer is real buyer or a “pass through buyer” someone who has know exit strategy and who dissapears when you ask them to send a Proof of Funds to the seller. There is a lot of money to be made in BULK REO If you can learn what it really takes to close a deal. It is a whole lot different from single whole sale deals and takes a llitle longer depending on size of deal. Thanks
I am a RE Appraiser, over 25 yerars-In CA, 1-st deal, no experience in REO BULK, Have the large corp with “” THE $ “” , and have worked with a REO Agent with “” THE TAPE “” for over 1 year, THE $ wanted to do it instantly-already has a escrow account for it, and the next deal-$20Million.
I have a deal going-both are walking, LOI,POF,Buyer just needs the bulk-$10M, I see your fee of $25,000 on a $300,000 TAPE-what a deal. I have made a deal with the BUYER for 1.75%-and only really have EMAIL time in with them. Oh by the way I also have set up another buyer, and will split this fee, THE MORE THE MERRIER.
I am also using THE TAPE for REO FLIPS, I know the values going in. I have access to large SUPER JUMBO residences that are having problems, just about all of them…
THE $ cant wait, I am more worried about the REO BULK, although, I have actually known THE BULK longer than THE $-I am signing all the documents this week, I put it together on Friday, I sent an Email to THE$, about BULK, and two emails later, LOI, POF’s, wow, and I have appraised over 13K residences, someone was talking about FLIPPING????, this beats that stuff without a drop of sweat. There are so many REO AGENTS JUST WISHING FOR SOME INVESTORS.
Banks are getting much more aggressive, just watch, I appraise for the LARGEST LENDER OF BAD LOANS, ok, not BOA/CWF…… but there is so much $$$$$$$ to be made, just open your eyes, and start moving your mouth, hopefully pointed at some REO AGENTS/BROKERS EARS…
FIND THE PROPERTY FIRST, THEN YOU HAVE CONTROL ULTIMATELY, I FOUND THEM AT THE SAME TIME….. oh well….
what is the best way to be paid??? after instantly setting up an LLC of course????
WCS-Worst Case Scenario
you owe child support, the IRS, you have judgements up the ying yang, and your credit cards have MELTED INSIDE YOUR WALLET from missuse, your credit score ROLLS NEGATIVE NUMBERS, and you even owe your MINISTER/PRIEST/RELIGIOUS OTHER, let alone every relative you can trace……
HOW WOULD YOU GET PAID………..????? but your not running from the police, yet!!!!!! ha ha
serious now!!!!!
thanks,
Norm
I have a real buyer who is wanting to purchase 15-25 homes in bulk purchase in the Dekalb county area.
He has proof of funds. How do I get started? please advise thanks Phyllis Bryant #678-516-4137
Hi…
You are correct, and unfortunately that does happen sometimes.
Thanks for such valuable info. and really helpful. Thanks for posting this.
Good exclusive information Kenny on the Bulk REO process and congradulations on your success, but I was wondering can you give us a prime example on how to fill out the master fee agreement step by step so we could give it a true shot?
Norm I would love to learn more about how you went about these deals
How can I get involved?
I’m in Miami
Thanks,
Robert
I have acess to inventory.
If anyone is interested in buying call me @ 305 224 2716 Dennys
Im investing between 3 partners 1.2 million to see how much bang we can get with our money here in Miami . Please call me 786 266 6527
Hi Kenny my name is also Kenney , I am a contractor and would like to learn all I can about bulk reo. How do I start?
All my contracting company did was work exclusively to a single bank from 2008-2015 and contracted each REO one by one and worked our rehab magic to bring them to pass HUD inspections so that they were marketable to VA, FHA loan applicants, which enabled a wider spectrum of buyers which created a win for bank and win for my company. Why can’t this be done today? Are there not as many contractors out there anymore?