Inside Real Estate Investing
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When a “seller” wants to make their profit on a spread (the difference between two prices), they do so through a pass through transaction. Simply put, a reseller has a contract with a principal seller at one price than attempts to resell it to an exit buyer at a higher price. In a nutshell, the transaction simply passes from the principal seller through the reseller to the exit buyer with all reps and warranties conveyed. Here’s how it works.
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BPO is an acronym for Broker’s Price Opinion. In general, the term Broker’s Price Opinion (BPO) is a method that a Real Estate Broker uses to estimate the value of a property. With each package of properties, the BPO price is usually listed but understand, these BPO’s are very subjective and not an exact science.
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Whenever I speak to an investor for the first time, I am always asked two key questions. First, am I direct to the seller and second, do I compile? The answer to the first question is yes but the answer to second question is no. There are many reasons why but the most important one is that unless you have a billion dollars, are an ex-banker with an extensive relationship to banks over a 20 year period, none of the banks or sellers will compile for you. This, of course, is a bit of an exaggeration but highlights the challenges of compiling.
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Every investor is seeking a great deal but for many, they look to specific geographical areas. Some are state specific while others are region specific. What is so appealing about these areas and why are they buying there?
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A reseller’s goal is to obtain access to a package through a direct relationship with a seller for the purpose of buying it at one price and then reselling it to an exit buyer for a higher price. Their profit is the spread, the difference between the two prices. Some resellers are worth their weight in gold while others are not. How do separate the good from the bad and how do you read between the lines so you are not lead down a path of frustration and disappointment?
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A buyer has reviewed the package and would like to submit an offer to the seller. The seller explains to the buyer that they have it under contract with the bank and will sign a purchase agreement with the buyer once they provide proof of funds. However, the buyer will only proof funds once the bank contract can be verified. The reseller will not provide any proof of contract until the buyer shows proof of funds. Buyer thinks reseller can’t proof the contract and the reseller thinks the buyer can’t proof funds. Neither party is willing to take the first step. Here lies the chicken and the egg.
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You’re a real estate investor trying to buy at a discount. You certainly are not going to buy them off the MLS at 80% – 90% of FMV. Your plan is to purchase directly from the banks or private sellers, so you need to know what type of discounts you can expect to receive. Well, here they are.
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As the housing bubble inflated, the math increasingly favored renting. House prices went up and up while rents stayed relatively flat, meaning you could get a lot more bang for your buck by choosing a lease over a deed. Now, with the housing market in a pulp, the tables are turning.
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Say hi to Daisy. She’s hot! Now that I have your attention, this unfortunately is not the Daisy we are going to discuss today. Waaaaahh! We are, however, going to talk about the less sexy version of Daisy, her evil twin known otherwise as the dreaded daisy chain (egads!). This is absolutely the most frustrating aspect of buying and selling REO bulk packages. No worries. I’ve got you covered. I have a few tips on avoiding the daisy chain (but not Daisy).
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That’s billion with a B. Yes, there are billion dollar deals available to billion dollar buyers every week… and I am the tooth fairy. Every so often I receive a call from a rep that has access to the FDIC and billions of dollars in REO’s and Notes. All that is required is executing their NCND and providing a proof of funds (POF). The rep will then put my buyer in direct contact with the attorneys representing the FDIC. Perfect!! Well, not so fast.
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