Does this help or hurt the investor market and, more importantly, the recovery of the real estate market in general? Or does it just prolong the inevitable?

Federal Reserve Chairman Ben Bernanke supports the national REO rental program saying in a white paper to Congress on this issue that “although small investors are currently buying and converting foreclosed properties to rental units on a limited scale, larger-scale conversions have not occurred.”

He points to three reasons this has not occurred –

• Grouping properties geographically has proven difficult and because of this it’s hard to streamline fixed costs
• Financing is hard to obtain and the REO holders are losing money in bulk sales
• Regulators have “generally encouraged sales of REO property as early as practicable.”

But what happens when the government becomes landlord in chief?

Bernanke says that that because Fannie Mae, Freddie Mac and the FHA are currently holding half of the REO inventory, they “might be able to aggregate enough properties to facilitate a cost-effective rental program in many rental markets.”

Does this just prolong the issue of loss to help the market recover?

The white paper states, “Preliminary estimates suggest that about two-fifths of Fannie Mae’s REO inventory would have a cap rate above 8 percent–sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property.”

That statement doesn’t tell us anything about how long this program will last. It doesn’t tell us the costs involved. Nor, does it tell us what effect this will have on the overall economy.

Sure, more renters will have places to live. But this doesn’t answer the long-term question. And the analysts firms disagree on what’s best, according to today’s HousingWire recap of the topic at the American Securitization Forum.

In Jacob Gafney’s report, Laurie Goodman, a managing director with Amherst Securities said this program “would result in a cottage industry devoted to third-party management of these properties.”

Barclays analysts disagreed and said the program “remains difficult to scale effectively and may not draw as much money as envisioned.”

So what does the white paper say about the success of the program?

• It offers several scenarios for how the program could work, but they also say “no such program currently exists, predicting its success of efficacy is difficult. Ongoing experimentation and analysis will be a crucial component of developing such a program.”
• Most of the properties held by Fannie Mae by “would have a cap rate above 8 percent.” This indicates that “renting the property might deliver a better loss recovery than selling the property.”
• The paper also suggests that home ownership is the best solution to this REO deluge. However, they also point out how difficult it is to get a mortgage in the current economic conditions.

So, what do you think? Would a national REO rental program help speed recovery or prolong it? Should the government go ahead and cut their losses and release the properties in bulk REO packages?

Foreclosure or REO investing is here to stay folks. Between the existing shadow inventory and the new filings, now’s the time to take advantage of this amazing buying opportunity!

To learn more about investing in REO’s visit Buying Bulk REO.

It’s a good idea to establish a relationship with several Realtors who work in areas you are interested in so you have a better chance of finding more properties. Most Realtors specialize in one or two close by areas. Realtors like working with investors on their REO listings because they know investors generally have cash and can close quickly. Banks like cash buyers also. Really, who doesn’t?

Tips to Getting Your Offer Accepted

* Always write a cash offer
* Attach a copy of your bank statement to show proof of funds or get a proof of funds letter from a transactional lender
* Eliminate as many contract contingencies as you can
* Offer to close quickly
* Do your due diligence so you are aware of the property value
* Choose properties that don’t show well or need repairs to eliminate competition from home owners

Establishing Relationships with Realtors

Realtors can help you find short sale properties as well. You should discuss the criteria you are looking for in a property with a Realtor, and your price range. This way, when the Realtor comes across a REO or short sale that meets your requirements, the Realtor will contact you immediately so you can view the property and put in an offer.

If you are serious about buying REO’s in today’s market, you need to talk to Realtors. Be sure to have your cash or financing available. Cash is king right now so keep that in mind when you are buying REO’s. If you don’t have access to cash, consider raising private money.

A homeowner is considered in “pre-foreclosure” when they have missed more then two payments and the bank has started the proceedings to foreclose on the home. This step will go all the way through the public auction phase.

Once a home has reached the auction stage and is auctioned off, then the foreclosure process is complete. However, sometimes these homes simply don’t sell and they revert back to the lender over the home loan. This of course is not what the lender wants. They receive no benefit from a piece of property just sitting there empty. The property is now said to be “Real Estate Owned” by the lender a.k.a REO.

This is where you as a real estate investor comes into play. These REO properties are usually sold for far less then the market value.  The only hinge is that usually the lenders want to sell multiple properties in a package deal. So as an investor you want to make sure that you have partnered with someone or a company that has a good funding source. The great thing is that investors are turning sour deals in to something sweet.

REO properties can be very profitable. It takes some time and work to locate these properties but it is well worth it in the end. While it’s sad that that this comes at the expense of someone losing their home, bulk REO properties are the light at the end of the tunnel for the lender and real estate investor.

Bulk REO is a VERY profitable strategy and there’s just one guy teaching it… for $1,500. That’s way too much. So my new course, Bulk REO Secrets, will be on the market in the next few weeks so be on the lookout! And it won’t set you back $1,500. Get Bulk REO Secrets.

So, here is the lowdown on the bulk REO portfolio strategy.

Is this a real strategy? Yes.

Are there bulk portfolios out there that I can get control of? Yes.

Can I get financing for bulk portfolios? Yes.

The answer to all of those questions is yes, but you HAVE to know what you are doing – just like in any other strategy. I could easily wake up one morning and announce, “I am a rehabber” but I promise you that just saying it doesn’t suddenly give me the ability to install carpet or drywall.

Heaven help the poor person that lives in the house that I personally rehab. They may as well live in a tent. Get my point? Just saying it doesn’t make it so.

So, obviously bulk REO’s are popular now as a result of the foreclosure crisis. So many investors (especially builders) have lost value and cash flow AND have had their lines of credit shut off that they have had to walk away from their holdings. The banks that have taken back these properties need to to move the bulk units to maintain regulatory and liquidity requirements. Portfolios are being offered at incredible discounts. Typically, the bigger the package the greater the discount.

So, how do you get in on this action. As I see it there are two models:

1) Be a syndicator
2) Be a rehabber

Let’s take a look at both. First, if you are a syndicator you are negotiating with the banks directly to get access to their portfolios – both performing and nonperforming- and then making these properties available to hedge fund/private equity buyers or individual investors.

You may come across companies or individuals who are “compilers” or “mandates” saying that you can get access to their portfolios to syndicate. That won’t work. That’s what’s called a “daisy chain” in the business and you’ll never find a buyer. If you want to be a syndicator, you need direct access to the bank that controls the portfolio. If you’re getting your inventory from a “mandate” or a “compiler” then the best you can say to  a potential hedge fund buyer is “I know a guy who has access to bulk REO’s.” YOU need to be the guy.

If you are a rehabber, you are taking down these portfolios yourself and putting a team in place to rehab and flip to retail buyers or hold in a rental portfolio. In this case you need access to a big line of credit, cash investors or ideally, both.

Most of the big dogs that are doing this strategy not only have lines of credit  but they have also negotiated a master loan commitment with a portfolio lender to provide “take out” financing for the properties that they purchased with their line of credit.

So, how do you get started? Decide which model you want to purse and then take action. To be a syndicator you’ll first need some “proof” to show the banks that you’re the real deal not just some poser. They’ll require some sort of proof of funds. You can get this letter or proof of funds from the hedge fund that has agreed to look at your deals. Like any good syndicator, I urge you to first build your buyers list. The buyer will tell you exactly what they want and then it’s your job to start calling portfolio lenders – small banks and credit unions- to find it. You can also try the disposition departments at REIT’s.

If you’re going to be a rehabber, pick your market, build your team on the ground, get your cash investors and/or line of credit together and contact the portfolio lenders to see what you can get. Typically, you cannot cherry pick, you have to take the whole chunk of properties.  Immediately start marketing to investors who want “turnkey” investment properties – already rehabbed, tenanted and maybe even Section 8 approved.

My best advice is hone your strategy and BE PROFESSIONAL. You’re not dealing with some schmo that’s in foreclosure because he got a 100% negative amortization loan, you’re dealing with PROFESSIONALS who DO NOT want to waste their time. Don’t use a ridiculous email address and solidify your relationships before you start marketing the portfolios. If you get an interested buyer can you imagine how fast you’ll lose your credibility if you can’t deliver?

OK, so that’s the very high level low down on the bulk REO strategy. I know this is a hot topic and MANY people have questions so I’m doing an in-depth virtual class on this topic this month.

Click HERE to get registered.