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I've notice something about reo bulk buyers.
5 posts by 3 users
ccastro
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Please correct me if I'm wrong. I see many posts in my short time on this forum and alot of them are from people buying REO's in bulk. How do these investors check the condition of 100 million dollars worth of properties which may even be in different states? Isn't the condition of the property important in bulk buying? or do they not care since they are probably going to sell them off to rehabbers ETC.. Even before I got involved with the idea of investing in real estate for a living I've always looked at the home I was buying. So what if any is the difference? Thanks. |
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Henry E.Real Estate BrokerCovina, California
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I have not purchase any REO’s pool as of yet, buy have been in mortgage pool buying for many years. From what I understand in REO bulk buying the buyers rely on current information provide by the selling parties to include recent appraisal, BPO, repair work order, etc. I have conclude that because they do buy at a larges enough discount the spread the potential losses over the total amount of properties brought get balanced. Also, I believe if the buyer choose do include a recourse provision in the purchase contract asking the seller to substitute an unacceptable property with a new property. Again I am simply stating what my research has indicated. There are also risk evaluation firms investors used that due the due diligence (risk evaluation) for a fee. Other things investor have been doing is to sell shortly after buying for a 13% profit lets call it flip to other investor who are happy to buy at around 65% LTV. Most of the REO in a pool are listed with the lenders REO listing agent and may be sold shortly after they buy the pools. I would like to hear from you on what you understand the process is. Thank you in advance. Don (Henry) Enrique |
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ccastro
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for responding. I don't know either. Your response makes sense to me, that's more than likely what is happening. I was hoping someone that is currently doing the bulk purchases could confirm your theory, thanks again. |
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John C.Real Estate Investor
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When you buy a large portfolio you have to assume some things. 1. Mistakes happen. There will be some unexpected dogs and some actual diamonds. 2. You need a period of due diligence or the package has to be up to date. 3. You likely want a way out which includes pushing back a junk property or the seller provides some cash in return. 4. You likely will need to sit down in a room with all the files and wade through them looking for obvious problems. You can then decide if you will do more due diligence on the ones that seem out of line. 5. You can set some parameters and then do a random spot check to see if the mix matches what you were expecting. Think about large corporate deals. There is no way that all the moving parts are checked before the deal goes through. Stuff is changing every day in any event. I know one large bank that found out it was misreporting its headcount for 5 years. I am talking about their annual statements being wrong. They had 6 HR systems so they could not really tell who worked for them. Acceptable margin of error. Also having a team that can dive in or people you can hire in the local markets (BPO agents, etc). It is all about the price you pay and how you set the terms. John Corey |
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John C.Real Estate Investor
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An interesting deal from back in the RTC days. Bank of America decides to buy a failed Oregon Savings and Loan (Ben Franklin Savings). They agree to pay the government $1 billion. In the contract the RTC (government agency selling) agreed to a 9 month due diligence period. If BofA found any loans on the books that it did not like they could push the loan back to the RTC and receive full credit for the face amount of the loan. 9 months pass and then it is reported that in the end BofA returned $1 billion in loans that it was not happy with. They received credit for the $1 billion. In effect they paid nothing for the bank they took over. The RTC effectively gave the BofA the Ben Franklin operation after BofA spent 9 months of checking the details and operating the business. It is all about price and terms when doing a large deal. Similar to when you do a smaller deal. Unlike some on here who think that if you get the terms you want you will be overpaying I would say that you have to focus on both. You are the buyer. Pay only what you want to pay and on your terms. If the seller is really motivated they will agree. John Corey |
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Posted: 06/25/2007 at 06:15AM