Blog Entry 02/23
REO Packages, bank compilers, and how it works. (Purchasing bank owned homes in compiled packets (buying in bulk) at an enormous discount).
Provided by Daniel McCarthy - 623-628-7372 dan@buy623.com
First things first, if you are reading this information below and you are interested in talking to a bank compiler about REO packages or if you represent a real estate investor looking for a REO packet give me a call. In this information I am discussing my experiences in Maricopa County Arizona.
Once again thank you readers for your emails and phone calls; it is what makes me continue to write. The subject I am discussing today is REO packets, or buying a package of REO homes for a substantial discount. Many people are talking about them. It really is a great concept. I would like to share my experiences excuse the spelling and grammar.
I would first like to explain how I stumbled across REO packages, then I am going to explain some of the terms involved with the process in my own words. In the past I have worked with really great real estate agents in Maricopa County Arizona. I have built relationships with some realtors during the transaction so good, that our friendship has lasted after the transaction was over. Well sure enough a very good friend of mine introduced me REO packages and explained the process and the people involved. I immediately recognized the potential in this opportunity. I also recognized the importance of good information to potential investors and/or realtors due to the nature of this investment. This type of investment in real estate does not come around to often. Imagine buying 100 homes at 63% value, or 200 homes at 50% value (just examples not exact). There are minimum dollar amounts involved; there are hurdles to jump in order to get your buyer in front of the bank compiler. However it is out there and it is done.
You have to imagine this from the banks prospective; at this point it doesn't matter how or why they have all of these homes, they have to sell them. If you had 10 palm trees would you rather sell each palm tree one at a time for $1.00 over a 1 year time frame, or would you rather sell all the 10 palm trees at $0.60 cents in a few days. In addition you have a new shipment of palm trees every week that need to sell in order for you to get your pay. Maybe a bad analogy but I think you get the point. Time is of the essence for these banks. They have to get the money back in their hands.
A few terms involved with buying a REO packages are: compiler, packages, packets, BPO, appraisal, LTV, proofing up, NCND, REO, exit strategy, and the last term I would like to explain is chain of middle people involved (for lack of better terms). Before I explain these terms in my horrible grammar filled blog, please note that I am not implying that I am a bank complier I am just sharing my experiences in this area and also mentioning that I do have access to some more detailed information on this subject so I welcome your further questions.
Bank Compiler: A bank complier is the person who actually group's a large number of bank owned homes in a package for an investor. The investor does work with the compiler to put a package together, after going through a series of obstacles. The bank compiler does not want to work with people who are not qualified and they need to show they are qualified to purchase a REO package. In many cases investors are looking for REO packages in Maricopa County Arizona, most compilers from what I understand can sell REO properties nationwide.
Packages or Packets:
A REO package or packet is exactly that; a group of REO homes, usually discounted for bulk purchase.
BPO:
BPO stands for broker's price opinion. It is different from an appraisal because it is conducted by a real estate broker not a lenders appraiser. A BPO should give a realistic price of what a piece of real estate should sell for in that market. Due to the sharp increases and decreases in the real estate market, I would suggest a BPO is not good after about 30 days. When selling your home for example in many cases a bank appraisal is not the best way of determining what you should sell your home for. A BPO should give you a good estimate of what your home could sell for. For buying an investment home or in this case buying multiple investment homes in a packet, it is important to have a BPO conducted on the homes you plan on reselling to know the true value of the property.
Appraisal:
As mentioned in the last section an appraisal is conducted by an appraiser. I think this is where many consumers are confused. An appraiser typically just ensures to a bank that a potential home buyer or homeowner attempting to refinance has a property that is worth the amount of money the customer is going for. If you buy a home and you are planning on financing the home, your lender will conduct an appraisal. Buying a home for investment, or a package of homes you do not want to know what the bank will lend for that home, you want to know what the piece of property can sell for. Finding a good potential selling price for your investment would best be determined by a good BPO (by good BPO, I mean conducted by a cautious broker who knows that BPO means selling the home at that price). Both an appraisal and BPO are conducted to help determine the value of a piece of real estate. I do find however that due to increasing information on the internet your own research is important, sometimes your own insight is just as good as a professional.
LTV:
Loan to value. This term can be used in different instances. In my experiences I generally discuss LTV when making an offer for a home buyer. I would mention to the realtor that the buyer I am working with plans on having 80% LTV, which would mean my buyer is putting 20% down on the home. In Maricopa County as of Quarter 1 of 2008 must parts of our county is labeled as a declining market which means lenders need 95% LTV to approve the loan. Let me explain I am a realtor I am not a lender, I can help direct you with a lender but I do lend money myself.
Proofing up:
This is a term used when trying to work with a REO complier. In must cases the REO compiler would like to see you have the funds to actually purchase a bank owned package of homes. The complier does not want to work with a buyer who can not show they have the cash avaible to buy a REO Packet. Proofing up is when the buyer proofs to a third party attorney they do in fact have the money at their discretion. Think about it, if your job was to sell a bulk REO package at 35 million dollars would you want to spend your time with someone who can not perform. Proofing up is one of the steps required by the compiler in order for the investor to actually talk directly to the compiler.
NCND:
Non Competition Non Disclosure. An agreement by all party's involved leading from the investor to the complier. The NCND is designed for the chain of people involved getting the buyer and the seller together, intended to recognize that no one entering into the agreement will share or go around anyone on the NCND in the future. This is to protect the middle people involved, ensuring compensation for putting the deal together.
For a copy of an NCND you can email me at dan@buy623.com
REO:
Real estate owned. Jargon which represents cooperate or bank owned homes. When referring to bank owned homes many people use the terminology REO. For example when discussing bank owned packets you would have better luck researching REO packets, or REO packages.
Exit Strategy:
You just purchased 70 pieces of residential real estate and now what do you do. You have to sell the homes and make maximum profit. A good exit strategy would include working with a team of aggressive real estate agents, attorneys, and lender's depending on the state you purchase your packet in. If you would like information on an exit strategy for investing in REO packages in Maricopa County Arizona (Maricopa county included Phoenix, Peoria, Scottsdale, Glendale, Surprise, Buckeye, Gilbert, Paradise Valley and much more) give me a call.
Chain of people:
The chain of people I am referring to is the people that get the REO investor to the bank compiler in one piece. This is where it gets tricky, but don't let it get confusing, if you know an investor looking to make a good return you should find them a compiler or someone who can get you and your buyer to a compiler. Compensation is involved for the chain of people coordinating the investor meeting the compiler, because there is some work involved and without the middle people there would be no transaction.
Ok so now that we know some of the terms involved with buying a REO package let's talk about it. From my experiences most REO packets I see are a minimum of 10 million dollars. 10 million dollars can buy you a group of homes at close to the .63 cents on the dollar range. This means an investor would own a group of homes at 63% value which could then be resold at 75%-80% value to consumers fast. The typical CD yield is about 4% with an REO package you are discussing a 12%-15% return fast. Good opportunity to make money and provide homes at a good value to home buyers. There is a due diligence period involved to inspect each home, and that is part of the buying process for the investor. For more information email me at dan@buy623.com
Daniel McCarthy
Branch Manager/Realtor
Metro North Realty
7975 W. Peoria Ave.
Peoria AZ, 85345
Office: (623)776-2353
Mobile: (623)628-7372
Fax: (623)321-1316
Website: www.buy623.com
Office Hours:
Monday - Saturday: 8:00 AM - 6:00 PM
Sunday: 12:00 AM - 5:00 PM
"Smart people know other smart people"
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