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.