Bulk REO Packages Offer Sexy Investment Opportunities

Thursday, December 17th, 2009 By

Real Estate Investment

The real estate foreclosure industry remains a fertile place to invest money. In a wounded American economy, banks and other lenders specializing in real estate finance have accumulated a surplus of foreclosed properties. However, this misfortune has created a unique environment for those in a position to invest money in the market. In fact, this damaged economy has ushered in a highly profitable investment niche, commonly referred to as bulk REO investing.

What Does REO Mean?

REO is an acronym for Real Estate Owned and is popularly used in real estate finance communities. More specifically, it most commonly refers to real estate owned by a bank or other real estate finance company as a result of the property’s former owner defaulting on mortgage payments. Although bulk REO investing sounds like a new real estate finance term, it is actually founded upon the age-old concept of purchasing multiple foreclosed properties in a single transaction. To better understand how this particular investing niche functions, it is helpful to first gain a basic understanding about how the foreclosure market works and why this is such a lucrative opportunity for those who can afford to invest money in bulk REO purchases.

Why Do Banks and Real Estate Finance Companies Sell Properties So Cheap?

Banks and other real estate finance lenders prefer to loan money and are not in the business of stockpiling real estate. In fact, having too many foreclosed properties on their books quickly turns into an accounting nightmare, as what was once deemed an asset when it was in the form of a healthy loan quickly turns into a liability when the real property is actually returned. In an attempt to protect their own credit and financial interests, banks routinely auction or outright sell their real estate surpluses at much less than their original cost or even their current retail value. Real estate finance companies far prefer to take a loss than to be burdened with the responsibilities of real estate ownership. Banks are not interested in trying to rent the property, lease it or even sell it on a retail market, as this would mean having to do things like invest money to make necessary repairs to the property and protecting it from vandalism during periods of vacancy. Instead, they far prefer to give others who are willing to invest money and time in these efforts, an opportunity to buy the property for less than its retail value as an incentive for a fast sale.

Why Are Banks Willing to Sell REO Properties in Bulk Quantities?

Even in this turbulent economy, those able to invest money in real estate are buying foreclosed properties in order to sell them for profit. These are mostly individuals who can afford to not only buy the property, but make any necessary repairs and improvements before listing it on the retail market. However, because banks own so many foreclosed properties in this market, they are eager to sell more of them than they normally would. Therefore, in an effort to avoid the liabilities discussed earlier, real estate finance professionals have created bulk REO investing packages.

Are Properties Included in a Bulk REO Sale Worth the Investment?

It is not uncommon for bulk REO packages to include properties that are in need of extensive repairs. However, those looking to invest money in real estate, and who are often buying such properties for a mere fraction of their retail price, are eager to do so regardless of their condition and sometimes are even willing to purchase them sight unseen, as they realize the profit potential involved.

As bulk REO offerings become more common, those looking to invest money in the foreclosure market are discovering an enormous opportunity to create substantial real estate wealth. Though the original owner unfortunately lost their property, smart investors who realize the opportunities being handed to them by real estate finance companies have been able use a downtrodden real estate market to their utmost benefit.

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