REO Companies: Foreclosure Property Investment on Autopilot- By: John Hanlin
The mortgage foreclosure process terminates with an auction that is referred to as a "Trustee's Sale" or a "Sheriff's Sale". Here, a residential property is auctioned off to the highest bidder and extinguishes all rights of ownership of the defaulting homeowner. If no one purchases the property at the auction, the title to the home reverts to the lender and it becomes what is known as an "REO Property" or "bank owned property". ("REO" is an acronym for "Real Estate Owned" by the bank).
Successful REO companies have all of these attributes plus the proven business processes outlined below:
And, believe it or not, the top REO Companies are so efficient that they can often buy, repair and resell their REO properties in as little as 4-6 months!
HOW TO INVEST IN REO COMPANIES:
A Professional REO Company will set out to acquire what is known as an "investment pool" of REO properties. Initially, they will seek out investors as "silent partners" to raise a certain amount of capital to help fund the investment pool of homes (i.e. To purchase REO homes from the banks).
NOTE: Silent partners are not involved in the day-to-day management of the investment pool, nor are they involved in the REO process. It is a "passive investment" for them. They simply sit back and let the REO companies do all of the work!
To exemplify how this works:
Letís say that an REO company will raise $5,000,000 from silent partner investors like you and me.
Once the $5,000,000 is raised, the REO company will typically go to a lending institution and initiate a short-term "bridge loan" for an additional amount of capital, by leveraging the $5,000,000 they have already raised. Letís say that this new loan is for an additional $10,000,000.
The REO company now has a total of $15,000,000 in buying power with which to acquire REO properties from the banks and create an investment pool of homes.
Next, the REO company will begin the process described in Steps 1-6 above. They will purchase "the cream of the crop" from the banksí REO property inventories until they reach their $15,000,000 spending limit. Now they have acquired their "investment pool" of homes. (e.g. 100 homes, averaging $150,000 each = $15,000,000.) * For our example this is 60% of market value - which is conservative.
As a silent partner, you would now be invested in this pool of 100 REO homes. After Steps 1-6 above are executed and all of the 100 homes have been sold, the investment process is completed.
* For this example, 60% of market value acquisition cost on our homes would translate to an average selling price of $250,000 each for a total of $25,000,000.
From the sales proceeds, the REO company pays all business expenses incurred ($3,300,000 or 13% of sales for our example). Then, the REO company will repay the $10,000,000 loan + loan fees of $700,000 to their lender. Next, they will repay the silent partners their original $5,000,000 investment. The remainder is a net profit of $6,000,000 to be shared proportionately with the silent partners.
Here is another way to look at it:
$ 5,000,000 Silent partners' investment
+ $10,000,000 Bridge loan amount
$15,000,000 TOTAL PAID for 100 REO homes @ 60% market value
$25,000,000 Total sales of 100 REO homes @ market value
- $ 3,300,000 Expenses (commissions, repairs, marketing, operations)
- $10,000,000 Repayment of bridge loan principal
- $ 700,000 Loan fees (10% APR, 6 months + 2 points)
- $ 5,000,000 Repayment of silent partnersí original investment
$ 6,000,000 NET PROFIT (to be shared with the silent partners)
The foreclosure market today is presenting investors with perhaps the greatest wealth building opportunity of our generation. And best of all, by investing with REO companies, it's passive income - the REO companies do all of the work for you!
The key to success with this method of foreclosure property investment is finding the right REO companies to invest with.
Article Source : http://www.realestateproarticles.com/
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