June 18, 2024


Mad about real estate

Bulk REO Insights into the Reality behind Purchased Proof-of-Funds Papers

If you pay attention to real estate investing trends, then you probably already know about Bulk REO Investing. This type of investing is huge right now – both literally and figuratively. Bulk REO investing involves buying large numbers of foreclosed properties (Real Estate Owned or REOs) from banks or other lenders. Often, you can get these deals at a steep discount because the lenders have been unable to use the properties to recoup their losses on the loans and are mainly focused just on getting rid of the homes as quickly as possible. As you can see, the potential is enormous.
However, in order to invest in REOs on a large scale, you need large scale cash. A lender who has lost out on a property once is not very likely to loan money on that property again. As a result, you need a major funding source (we’re talking proof of funds in the millions in most cases) in order to even get the bank to negotiate with you on a bulk REO deal. As recently as last year, only a few sources of funding like this were available. Now, however, more and more investors are actually offering the use of their funds (for a price, of course) in exchange for the leads on the deals.
This can be a really attractive offer if you cannot front the money yourself, but you need to be very clear about what your options are when you get involved in the purchase of a proof of funds (PIF). Some private lenders will allow you to use that PIF repeatedly as long as you keep turning up good deals. Others limit the number of times you can access the PIF. Sometimes you can actually purchase individual properties from the lender once you have obtained the bulk deal, while other times the lender retains total control over the properties and will only pay you a set finder’s fee.
Obviously, having PIF is pretty integral to success in bulk REO investing. However, you need to be careful that you do not get roped into a PIF “deal” that is not beneficial for you. One of my coaching clients came to me very excited because he had a 2 million dollar proof of funds that he could use to do as many deals as he liked. He had paid over  2,000 dollar  for this PIF. However, when he tried to use it, he found out that the owner of the funds had to personally approve every deal before it was done, and this guy was not very quick when it came to reviewing his customers’ deals. We waited nearly 3 months to get the deal approved before we could even start negotiating with the bank, and in the end the whole thing fell apart because several other investors actually had “ready money” and came in while we were waiting and bought the properties.
Needless to say, my client was really upset. But it was all there in the fine print, and he had no recourse. If you are thinking of buying a PIF, make sure that you really need one. See if you can partner with a private lender directly so that the PIF is more under your control. You also may have hidden assets that you can leverage to create your own PIF, such as a number of “small” retirement funds from different jobs that when lumped together can create some serious leverage. Buying a PIF service can be a good thing for your real estate investing career, but only if you are prepared to use those funds exactly how the actual owner of the money wants you to use them.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visitwww.CoachingByPeter.com.