Many real estate buyers are aware that there are fantastic bargains available in the real estate market. The huge amount of bank foreclosures has led to a tidal wave of bank owned REO properties which has flooded the market with low priced properties. Astute investors are taking advantage of this situation to scoop up houses at bargain basement prices.

If you are considering investing in bank owned properties then you will need to be a cash buyer. This means that you are required to show "proof of funds" which is usually a bank statement which shows that you have the cash available to purchase the house. 

If you don't have the cash available then you will need to borrow the money from someone that does. If you have a relative or friend with access to cash they might be willing to lend you money to purchase a property in exchange for you giving them a first mortgage on the property. They will effectively become the bank and you will be required to make a monthly payment to them. 

There are professionals in the real estate business that make these kinds of loans to people that are not relatives. They are called hard money lenders. The only difference between a hard money lender and a private investor is the interest rate. Borrowing from Aunt Sallie might cost you 8% per year in interest. A typical hard money mortgage in today's market would be 15% plus 3 points up front.
 
Why would anyone borrow money at such a high interest rate? Let's look at an example. Assume that you could purchase a bank owned REO property for $40,000 when the house has a true market value to a non cash buyer of $80,000. Paying 15% interest on a $40,000 loan amounts to a monthly payment of only $500.
 
Assume that you waited 90 days for seasoning of title and then sold the property to an FHA first time homebuyer for $79,900. Assume that you paid a commission of 6% to the realtor and another 6% to pay for the buyers closing costs. You would still net $70,000 from this transaction. After paying off the hard money lender the $40,000 that you borrowed, you would still be left with a profit of $30,000. Even if you held the house for six month before finding a buyer you would only have spent $500 per month in interest for 6 months. Your total interest cost would only have been $3,000. This would leave you with a net profit of $27,000. 

Or expressed another way, using no money down (borrowing all of the money) you could potentially make a profit of $27,000. How easy would it be to sell a house like this to a first time home buyer? The answer is it would be extremely easy. The buyers are putting down only $3,000 (3 ½%) to buy a house with a monthly mortgage payment which is about the same as their monthly rent. You are paying all of their closing costs. And the government will give them an $8,000 tax credit if they purchase before the end of 2009. It is a win/win for everyone. The bank gets to sell their property quickly to a cash buyer. The cash buyer gets to flip the property and make a quick profit and the end FHA buyer gets to own a home for the same monthly payment as rent. 

The trick to the above transaction is to find an $80,000 property that you can buy for $40,000. This is the part that requires training, knowledge and experience. Finding deals like this is an art form and the people that find these deals are known as "bird dogs" or "property scouts". 

Many bird dogs sell their deals to cash investors for a small profit. This is known as wholesaling. For example a wholesaler might contract to purchase the above house for $40,000 and then sell it for $45,000 to another cash investor. This way, the wholesaler does not need to borrow money from a hard money lender. The wholesaler simply finds a deal, signs a contract to buy it and then flips the contract to a cash investor for a profit. This is known as "assigning a contract" and the profit that is paid to the wholesaler is known as an "assignment fee". 

Banks do not want wholesalers flipping contracts on bank owned properties. For this reason, banks do not allow assignable contracts. This means that a wholesaler cannot assign a bank owned property to another cash investor. The reality is that there are still ways that a property can be assigned. One way is to purchase the property in a Land Trust and then assign the beneficial interest in the land trust. Another way is to purchase the property in an LLC and then assign the membership interest in the LLC. However the problem with these methods is that the end buyer might not want to have a land trust or an LLC.
 
For this reason, the best way to sell a bank owned property to another cash investor is to have what is known as a double closing.  This means that the wholesaler essentially buys the house from the bank and then simultaneously on the same day sells it to another cash investor. The disadvantage is that the wholesaler will be paying double closing costs.
 
If a wholesaler has a signed contract and is wholesaling the deal to an end buyer, then if the wholesaler is short on cash they might need what is known as "transactional funding". Transactional funding is perfect for bank owned properties and short sales that a wholesaler is flipping to an end buyer. Since banks do not allow assignable contracts the wholesaler is going to need to schedule a double closing with the end buyer. Double closings also known as simultaneous closings allow a wholesaler to schedule two back to back closings for the same property on the same day. The wholesaler will need to have a source of funds to pay for the first transaction. This is where transactional funding (also known as same day funds) is needed.
 
Our company offers transactional funding to all of our Private Mentoring Students. However our students need to schedule both closing with our title company in order for us to offer the transactional funding. We will only offer transactional funding if both closings are with our title company (Independence Title & Escrow).
 
If you are looking to flip a bank owned property then you will have two contracts and two closings. The first contract is between the bank (seller) and you (buyer). The second contract is between you (seller) and your end buyer (buyer). The end buyer is the person that will ultimately be the long term owner of the property.
 
Example:
 
A – Bank

B – You

C – End Buyer
 
Assume that you have a contract with the bank to purchase a bank owned property at $40,000 (first contract). This is known as the A-B transaction. 

You market this property to your cash buyers and you find a buyer at $45,000. You sign a contract with this buyer with you being the seller and them being the buyer (second contract). This is known as the B-C transaction. 

The difference between the two contracts (after deducting closing costs) is your profit which you will walk away with at the closing. Since there are two contracts there are two closings. This means you will pay double closing costs. 

The transactional funding fee that we charge is 2% +$495 with a minimum fee of $1,250. For example if you were to request $40,000 your fee would be $800+$495=$1,295. We will only provide transactional funding if you use our title company (Independence Title) for both closings.
 
To learn more about transactional funding please visit  http://lexlevinrad.com/transaction_funding.html
 
Copyright © 2009, Lex Levinrad

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Vivian Hooton is one of the top students of Mark Jackson and Sam Bell in their Virtual REO system. He talks with Roberto Mazzoni about what he learned in a working cruise where they invested directly from the ship.

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Rick Dove is one of the top students of Mark Jackson and Sam Bell in their Virtual REO system. He talks with Roberto Mazzoni about what he learned in a working cruise where they invested directly from the ship.

Buy GOLD Now

Bulk REO investments are one of the hottest ways that people are looking into in order to provide themselves with some sort of financial stability in these fiscally trying times. If you are looking at bulk REO investment as a way of getting a good investment deal, one of the things that you should understand about these types of transactions is the reason why banks prefer to sell bulk REOs. This is very important in order for you to have a better idea of why bulk REO investments can be profitable, and why they can also hide some tricks up its sleeve which a good bulk REO investor can easily avoid.

The REO process

Banks and bulk REO investments are intricately interlinked with one another because the REOs are actually the result of foreclosures done by banks on real estate that has not been paid by the homeowner. Today, one of the best assets that a person can have is a home, because it is one of the most highly valued private properties that a person can put on collateral. Because of this, many people put the home in mortgage agreements to act as a form of collateral in order for them to secure more credits and loans from lending institutions such as banks. In the event that person can no longer pay the mortgage, the bank can choose to foreclose the agreement and claim the real estate.

The catch

However, the banks actually prefer to have their accounts cleared by payments instead of through foreclosures. For most people, the widely held belief is that foreclosures are intentional acts of the banking institutions to cash in money. Contrary to popular belief, however, unpaid mortgages that has resulted in foreclosures as well as in bulk REOs actually works against the name of the bank, since as an institution the primary goal is to lend and retrieve the lent amounts in cash. Because of this, most real estate foreclosed by the banks is immediately sent to foreclosure auctions in order for the banks to get rid of the foreclosed property from its accounts as soon as possible. In the accounts, for more, these REOs show up not as assets but as liabilities.

The REO is born

Hence, when the bank is unable to find suitable buyers for the repossessed REO lots, the bank has several options, one of which is to personally package the bulk REOs for sale to people who need the bulk REO for investment options. The bank can also choose another alternative path that leads to the same goal – the use of real estate agents that will hook up the bank with a buyer of bulk REOs. Whatever means the banks make use of to rid themselves of real estate, the end result is that cheap property becomes available for lay people who are looking for easy investments.

In sum, one of the essential reasons why banks prefer to sell their bulk REOs is because the currency used by the bank as well as other lending institutions is hard cash and credit. This means that a bank does not actually add anything to its reserve of money available for lending when it keeps an REO property.

Gold is Money

This is an old video of me improvising in my old room in Brighton, the walls were so damp there was mould growing, and lots of maggots crawling around. A small slice of guitar. Please check out www.myspace.com/mojudas

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.com Lynn Jackson a new author traveling in the Mediterranean stops for some local fair a Crepe. She describes the sheer joy and pleasure of this local treat. Her son Matthew gets in on the pleasure so much it makes him do the happy dance. … "real estate" "reo deals" "house values" "real estate comps" "real estate investing" investorcompsonline "virtual reo investing" "mark jackson" mjinmypjs "sam bell 3rd" "web 2.0" "real estate wealth 2.0" "internet investors club" comps "comparable sales" …

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I too was once a beginner real estate investor. When I got started in real estate it was in Houston, Texas in the mid 1980's. That town was experiencing what our country is experiencing today. Over one third of the houses were foreclosed on … at one time or another … property values had dropped. FHA and VA had large volumes of houses that were for sale. After those foreclosures the FHA and VA needed to get rid of them. They would list them in the paper for all to see and to go bid on them. They sold them using closed bids. They would open out of the bid offerings on a certain day and award sale to the highest bidder.

It was a time when REO's [REO stands for Real Estate Owned] were everywhere. It was the first time I understood short sale. When times are like they are now, it's a good time to get out and make money. The real estate is there and the prices are good.

Plus, in this business, you don't always have to use your money. There is someone else out there who will partner with you. Sometimes they are Dentists, or Professionals who have take their money and have decided they want real good returns. They will partner with you for part of the profit. This is not a bad way to go because the money flows in. And the good news is no one is looking at your credit report. No one is looking at you. And no one is putting out a large loan on your credit to bring your scores down. That's worth something in itself, not having to spend time filing papers for the bank or the mortgage company. There is no waiting for the money, it's already available.

There are plenty of people right now who understand a good deal when they see one. Everybody concentrates in the news about people being foreclosed on. They never talk about the fact that those same people need a place to live and are typically eager to rent a house that is in nice shape.

And unless you are in Texas where Lease Options are against the law, you could probably do a Lease Option and structure it in such a way that when the market comes back up they could purchase the house that they are renting from you at a later date.

I've found in the past that always makes for a better tenant that takes better care of my property. As a result my properties are more liquid when I need them to be. All in all, for us real estate investors, since we didn't create this mess, and we are not responsible for the situation. So we feel real estate investors shouldn't feel guilty when taking advantage of the mess that is in front of us.

There are ways for us to help out. I know, in the news they are talking daily about how the Government intends to fix things and how the mortgage companies intend to fix things and help people out, but there are still going to be way to many people who need help. It is our job to get out and see what we can do to help them.

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