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Summit Assets Group
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Morgan Hill, CA 95037

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Bulk REO Lists

Foreclosure Problem–Investor Opportunity

Ever wonder what happens to all the foreclosed properties that the banks can’t sell?  Houses are sitting on the market empty for 180 days to two years, until they become part of a bulk REO package.  A bulk REO package consists of 10-15 homes (nationwide) sold together for less than a single house sells for in California. This situation creates an opportunity for an individual to own a portfolio of properties that will produce cash flow for years to come.

There are two ways to participate in this business, and both offer high returns.

Are you a hands-on person? If you want to create a new business buying and selling these REOs, you will capture the greatest upside. Cash flow is long-term and lucrative. It requires a creative thinking, training, and a supportive community, such as SJREI.  Best yet, it does not require a real estate license.  While some of your REOs will sell for cash, most will be sold with a seller financing document called a land contract. Seller financing is critical to this business model because 1) banks won’t originate a loan for a home valued less than $60k, and 2) banks won’t lend to credit challenged homebuyers.  In the bulk REO business, you, the seller, becomes the bank and the homeowner repays the loan over time at a lucrative interest rate—9% to 10%.

Do you have IRA money sitting in a non-performing fund? With self-directed IRAs, you can invest in real estate, including the bulk REO opportunity. For example, a $35,000 land contract would pay about $350 per month at 9% fully amortized over 15 years. This means about $63,000 is paid out over 15 years to you, the buyer. And you could buy this note for $19,500 to $25,500. As a passive investor, you can purchase notes with your IRA money.  All of the payments return directly to your IRA tax free. The typical yield on these land contracts is around 15% to 20%.  If you are interested in purchasing notes, a good way to find sellers is to network at your local Real Estate Investors Association (in San Jose, contact SJREI.net) and to contact a bulk REO reseller such as Summit Solutions Team, Corp.

By |July 23rd, 2010|Bulk REO Lists|0 Comments

Bulk REO List Scams

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.

By |July 9th, 2010|Bulk REO Lists|3 Comments

HR 4173 Threatens Seller Financing—Act Now to Keep this Option Alive!

We believe in seller financing.  It is the ONLY positive solution on the horizon for homeownership. Banks aren’t lending.  Unless a family needs a loan greater than $60,000, no lending institution will touch them. Meanwhile many, many, sub-$60k homes are on the market or sit vacant.  Thousands of individuals and small business have stepped in to fill the void.  They are willing to put up their own money to finance home purchases.  HR 4173 restricts the number of properties a seller may finance to only one property every 3 years!

What to do?  There is time to amend this legislation. There are two proposed modifications to the bill that can make a difference, but only if your congressional representatives vote for them.  Please contact your representatives today and request that they eliminate Sec. 1073 and Sec.1074 from HR 4173.  This bill is up for vote.  Time is of the essence.  Please act today.

For more information, download the HR_4173_Fact_Sheet prepared by the National Association to Protect Private Property Rights, or use the HR_4173_-_Sample_Letter as a basis for your own communication to your representatives.

By |June 24th, 2010|Bulk REO Lists|0 Comments

Where’s My Deed?

…Or A Squeaky Wheel Ticks-Off the Driver.

The old saying “the squeaky wheel gets the grease” does not hold true when it comes to bulk REO deeds.  Here’s why and what to do about it.

There will be times when you have a cash buyer for one of the properties that you purchased as a bulk REO.  Yet, you find that you cannot close because you do not have the deed to that property.  What to do? Call your bulk REO list broker.  It is the broker’s job to ensure you get the deed as soon as possible. Asset managers will talk to the bulk REO list broker…they do not want to talk with you!

I cannot emphasize this point strongly enough.  Asset managers and their staff (the people in position to actually assign the deed) DO NOT speak with bulk REO list buyers.  They may answer the phone, and manners dictate that they will not actually hang up on you, but they WILL call your list broker and give them an earful about being annoyed by your call.  The result? Your deed will go to the bottom of the pile to be processed.  The business should not operate this way, but it does.

In summary: If you are in a situation where you must have the deed, call your list broker and let them escalate the issue.

What to do in the meanwhile?

  1. Continue to offer the property for sale at your terms (don’t let your property age just because you have a deed dependant buyer—get another offer).
  2. Offer the cash buyer a contract for deed.  This instrument gives the buyer full use and benefit of the property.  Adjust the terms to 75% down payment, 25% due at the time the deed is transferred.
  3. Realize that deed fraud exists.  Your buyer has a right to be concerned.  Provide an affidavit of sale to prove you that you in fact own the property.  Again, contact your list broker for assistance.

Why do deeds take so long to get?

Assets on bulk REO lists are foreclosed properties, the ones people walked away from, the ones no one else wanted.  It is difficult to track down the prior deed.  Once it is tracked down, a new deed needs to be produced according the very particular requirements of each county and state. Then that deed needs to be recorded.  Recorder’s offices are not immune from the cutbacks all government services are experiencing. It takes up to six weeks for a recorder to get around to recording the deed.  Yes, up to six weeks.  Look at a few county recorder websites, they disclose this delay.

But wait! There may be more unavoidable delays.  In addition to the six weeks required for one deed to record, some titles are transferred from the asset manager back to the bank and then to the list buyer.  It may take months for a property to be recorded in your name.

The above process is followed for every single deed.  Now imagine an asset manager’s office processing 1,000 or more deeds at one time. There is no need to feel sorry for the processing clerks, but do understand that they are overwhelmed by paperwork.  When you call, you are interrupting the important work of actually producing deeds.  For every ten minutes they spend on the phone with you, they will have to spend another thirty minutes just finding the status of your particular property—if they can find the status.  Then they have to get back to you.  In total, they just spent 50 minutes to give you an update when they could have used that time to actually process a deed.  Is it no wonder that they get annoyed when a bulk REO list buyer calls?

When you need the status on a deed, work through your list broker and be patient. Do not put yourself in the position of ticking off an asset manger by calling his or her office directly.  Asset managers view this behavior as a breach of protocol and it will not result in your deed being produced any more quickly. In fact, it may further delay the process.  This is the one time where being the squeaky wheel does not work.  If you must squeak, address the correct individual: your REO list broker.

By |June 21st, 2010|Bulk REO Lists|1 Comment

Top 10 Questions About Bulk REOs

What is a bank bulk REOs? What is the difference between REO and foreclosure? What is the difference between Bulk REOs and REO?

When a bank forecloses on a property and no one buys it at auction, it becomes real estate owned (REO) by the bank. The banks or asset managers list these homes with realtors to try to sell them. If they don’t sell over a period of time, they will group REOs together and sell the package to investors. This group of homes is called “bulk” REOs.

Why do banks sell REOs in bulk?

They can’t sell the property any other way and they are trying to get it off their books.

Who can purchase REOs from banks?

Banks and asset managers only sell to a select few investors and then those investors sell to the rest of the market place.

What percentage properties on bulk lists are good? What percentage are junkers?

In a bulk list of 10 homes, typically three properties will be under performers, or junkers, and the others will be good. But, it all comes down to doing your research and picking the properties well.

How to do I cherry pick from a bulk list? Will I pay a premium for cherry picking?

Not all brokers offer this benefit.  When Summit Solutions Team provides a list of properties, you can choose to focus in two or three metropolitan areas. The pricing of cherry picking turns out to be cheaper in the long run. If you buy a list blind—that is, purchase every house on the list– there will be some bad houses in it and you will have to sell those at a loss. The cost of the loss will have to be averaged over the cost of the good properties. So, in the long run, cherry picking is not a premium pricing.

What is the average purchase price?  What is the range per property?

The average price of a house on our lists is about $8000. This home can often be sold on a land contract for about $35,000.

What percentage of properties will sell for cash and what percent will require seller financing?

If you pick good properties in your package, you can expect to sell about 10% for cash at a profit and the rest either on a land contract or at a neutral or loss position.

What are the typical terms of seller financing?

Anything from 15 to 30 years at 9 to 10%.

Can someone starting new do this business part time? Do you recommend it?

Of course, you can try to do it part time, but if so, we recommend you hire someone to help answer the sales calls and do research. This is a business using an investment strategy, but it has to be run like a business.

What are the pitfalls of this business?

The pitfalls are the things about the property that you didn’t know when you bought it. This is why the best buy is when you have done your research and know as much as you can about the property. Your houses may get vandalized or burn down.  Someone may move into your house without permission.

Municipalities may charge maintenance liens because the lawn has not been mowed or because of garbage in the yard. Some counties require the unpaid water bills stay attached as a lien against the property. And there are often unpaid property taxes.  All these things cost money to correct.  That is why we recommend that our clients keep 20% of their cash in reserve.

By |May 12th, 2010|Bulk REO Lists|0 Comments

REOs with IRA Dollars

Have you heard the buzz about buying Bulk REO’s? In case you haven’t, it’s where an investor purchases 10-15 homes in a bulk package for around $100,000 ($6,000-$10,000 per house!). The investor then sells these houses for $25,000 to $35,000 to homeowners with a seller financing document called a land contract. Seller financing is critical to this business because 1) banks won’t originate a loan for a home valued less than $60k, and 2) banks won’t lend to credit challenged homebuyers.  In the bulk REO business, the seller becomes the bank and the homeowner repays the loan over time at a lucrative interest rate—9% to 10%.

There are two ways to participate in this business, and both offer high ROIs.

Are you an active investor? If you are an experienced investor and want to create a new business buying and selling these REOs, you will capture greatest upside in this opportunity. Cash flow is long-term and lucrative. This business is a long-term investment because as mentioned above, the land contracts pay out over 10-25 years at 9% interest. Because of the entry cost is so low, many active investors realize a ROI in 18-24 months. However, the only way to realize quick cash is by selling the land contracts at a discount to passive investors.  Selling a 10 to 25 year note early leaves a lot of profit on the table, but cash on hand provides you with an opportunity to purchase more properties and continue the cycle.  Some active investors build their business with IRA money—but only after receiving competent direction from an attorney and account experienced with this type of investment.

Are you a passive investor? If you don’t want to create a new business, you can buy the cash flow from active investors! For example, a $35,000 land contract would pay about $350 per month at 9% fully amortized over 15 years. This means about $63,000 is paid out over 15 years to you, the buyer. And you could buy this note for $19,500 to $25,500. As a passive investor, you can purchase notes with your IRA money.  All of the payments return directly to your IRA tax free. The typical yield on these land contracts is around 20%.  If you are interested in purchasing notes, a good way to find sellers is to network at SJREI and to contact a bulk REO reseller such as Summit Solutions Team, Corp.  We often know which of our client investors are interested in selling their land contracts.

The key to do either passive or active investing is to move your 401K’s and IRA money to a custodian like Entrust that allows you to direct your investments. Traditional Self Directed IRA’s are a step in the right direction, but the problem with using this option to buy real estate is that you will soon learn you need the custodian to sign all of your purchase contracts and sales documents. This step could actually cost you a purchase and a sale in this fast-paced business.

Creating an IRA LLC with an experienced real estate attorney is one way to overcome these obstacles.  In addition to getting checkbook control, a properly planned LLC can provide a way that you and your family can combine your IRA money to make investments. There are many federal regulations that must be followed, so use an attorney to help you create your IRA LLC and consult with tax professional to ensure compliance with IRS requirements.

By |May 5th, 2010|Bulk REO Lists|0 Comments