Part III of How to buy Bulk REO's Brought to you by SillyPricesSweetDeals.com/1.html
Compiling a list: Once you have money and it is legit, the bank can't present you with some random list and legally expect you to buy it. The bank wants to see where you intend to buy, what you intend to buy at what price you intend to buy and what level of rehab will be needed for you. Some buyers only want perfect homes only needing carpet and paint. Other buyers only want heavy rehab homes because of deeper discounts.
Enter in to the Letter of Intent: The bank can't put a Tape together without knowing what you want to buy. The letter of intent outlines all the demands you have for the property you want to buy. They can usually tell you if they have the inventory, at the locations you need and in the condition you request. The Proof of Funds and LOI are your "credentials" that tell the bank you're serious about buying. Once the bank sees your LOI and POF, they have something to work off of.
Now the work begins at the bank.
The banks have a tough job of making this thing work. Imagine you had 1000's of foreclosed homes in your inventory. Some of those homes were listed on the MLS, some are going into an auction tomorrow, some of them have been pulled into court because the original owner thinks the foreclosure process was wrong. How do you track all your foreclosed property? How do you keep track of which homes are available and which ones are being closed on tomorrow. This is no small task I assure you.
Now, a buyer comes in and says, " I want to make a bulk purchase of 100 homes in Southern California at 10% of market value". Do you laugh at his face? Do you have security haul him off to the loony bin?
This is where managing expectations is important. The housing market is beginning to settle down especially in SoCal, TX and other areas of the country. If YOU were the bank would you risk losing even more of your shirt by selling to the bulk buyer at 10% or would you perhaps wait to see what happens with your properties on the MLS at 65%. The Banks need to clear inventory, but not THAT bad. If you make some blind offer without knowing the discounts that are reasonable you're likely to get laughed at (not really) but you get the point. Here's what we're seeing for bulk discounts across the country: CA SoCal / NorCal - 65% pretty solidly; Midwest -18-25% frequently; Detroit and MI: 5-7% all day long. FL and TX I'm not sure on but I've seen some TX at 25-32% but not one I've closed. Las Vegas is somewhere around 40-55% depending on location.
For the right buyer, Bulk REO's can be a steal; however, if you don't have the right teams in place for moving the property or repairing them you may have a bunch of junk houses when you're done.
In some cities, ordinances are being passed where the city (or you) will need to board up the houses that are vacant. In Detroit, the city is doing this and then slapping a huge lien on the property immediately afterwards which adds to your cost of ownership.
If you're reading this third blog you're probably ready for a quick chat. Shoot me an email (no I'll not give it out on a blog) by going to http://SillyPricesSweetDeals.com and click on contact.
Thanks again for reading and feel free to leave a comment.
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