Bulk REO purchases offer a lucrative opportunity for building your real estate portfolio, but as with any potentially high return investment, there are charlatans ready to take your money and leave you poised for financial disaster. The internet is full of web sites purporting to sell bulk REO lists (also called bulk REO tapes); however, some of these lists are fraudulent, and others contain truly unsellable properties—burned out shells, vacant lots, and uninhabitable mobile homes. Charlatans make a living sounding convincing, so how do you weed out the racketeers from the reputable?
1. Get references. Speak with three to five individuals who have purchased lists from the broker you are investigating. What made them happy with their experience and what left them dissatisfied? Even disreputable brokers can arrange for two or three glowing references…but five, now that is difficult. Be certain to ask the references how they are related to the broker. If they are family, have a financial stake in the broker’s company, or receive a referral fee, beware.
2. What services does the broker offer to clients? All brokers make some kind of commission, but those that add commission without adding value are to be avoided.
3. Deal with top tier brokers. Top tier brokers are one to two steps away from the deeds to the properties and that much closer to delivering lists with fresh properties. REO properties don’t just grow stale, they rot. The longer a house sits on a list, the longer it is vacant and attracting undesirable attention: code violations, vandalism, and physical damage from lack of maintenance. If you are offered a list of 300 or more properties, most likely those properties have accumulated over a period of time from a variety of sources AND they are old. This doesn’t mean it’s all bad, just know what you are buying! Another way to ascertain the quality of a broker, is to spot check one of the lists. How many entities have owned a particular property since foreclosure? If there is more than two, the property has been bounced from asset manager to asset manager.
4. Use escrow. Only deal with brokers who are willing to place your money in escrow to be disbursed upon delivery of deeds or affidavit of sale. Why wouldn’t any reputable company use an escrow account? Why would you settle for less?
Much money can be made, or lost, in the bulk REO business. Perform your due diligence, work with recommended, reputable companies, and seek experienced mentors. With sensible precautions, you too can experience success in this fast paced business.