Why not buy'em by the dozen?



As the old saying goes, "Fortunes are made when blood is in the streets." Well, there is certainly plenty of blood sloshing around the halls of banks and mortgage lenders right now. And that's the key to the big money in foreclosure investing.

Thousands of REOs

What happens to a home when there are no bidders at the foreclosure action? The property becomes an REO (real estate owned)on the lender's balance sheet. If you could sneak in and take look at a bank's books you would learn that banks have REOs running out of their ears!

Having hundreds (thousands?) of foreclosed properties on their books draws the scrutiny of regulators and the ire of stock holders. Lenders want those homes to go away as quickly as possible. Their standard practice is to list the homes with a local real estate broker so the property can be exposed to buyers through the MLS.

Home Buyers Extinct

That's sounds good except for one fact - there are no buyers. People are scared by all the negative financial news, and even if they want to buy lenders have tightened their standards (finally) and qualifying for a mortgage loan is tough.

I heard one real estate broker say that he is handling over 200 REO listings and is lucky to find two buyers a month.

Clang, clang, clang! A wealth building opportunity rolls into view for the bold and adventurous. Banks will make killer deals for the person who can walk in with an offer to purchase a group of homes.

Group of Dollars

Yes, but how can you come up with the money to buy a basket full of homes if you don't have deep pockets? Easy, do it the old fashioned way. Put together a group of investors.

At one time the common way to do this was by creating a real estate limited partnership. I am not a real estate attorney, nor am I qualified to give legal advice, but today I think a Limited Liability Company will serve the purpose very nicely.

It is easy and inexpensive to form an LLC. The paperwork involved is minimal and taxes flow through to each member's personal income tax, so there are few tax complications.

The Cash Attracting Question

You can find investors by posing this magic question to every person you meet. "I wonder if you know of anyone who would like to make some money with foreclosure real estate?"

When they hear that non threatening question most people are going to perk up and ask for more information... or mention the names of friends. The beauty of the question is that it puts no pressure on your target and they ask you to tell them more. You are not placed in the position of trying to force the information on them.

The Exit Strategy

How do you get to your profit? First a warning! I see many ads that promise you can buy foreclosures at 20% below market value. The catch is that no one can know market value. As this is written real estate values are still trending down and no one knows where the bottom will be. That 20% is probably phantom equity that will quickly disappear.

When you buy'em by the dozen from lenders you can get discounts of 50% or more. Home values can continue to drop and you will still have a fat profit if you sell; or positive cash flow if your group holds and rents for two or three years.

Most people give up trying to buy REOs, because they can't get through to the banker who handles those deals. That won't be your problem.

Simply talk to the manager where you do your banking (or any other bank branch manager). Explain you have a group of investors with cash who are ready to make a bulk purchase of REOs.

Then sit back and watch those normally very aloof bankers roll out the red carpet. Yes, things really are cheaper by the dozen.