Bulk purchases are the grab bag of the real estate industry. Like any other grab bag you might have been tempted to get, there’s going to be a handful of good for as much bad.
In this industry, there are bulk REO lenders who sell bulk packages of property. I’ve seen bulk purchases anywhere from 10 to as many as 500 properties in them. You aren’t going to get a lot of information on these properties and may not even get pictures. You have to agree to the sale sight unseen. I’ve known extreme cases where somebody thought they were buying a house only to find out it’s just a vacant lot.
Where do these houses come from? Banks sell bulk properties because these properties generally don’t sell for a realtor or have back taxes or other liens against them. Sometimes, there’s fire damage, or title issues that the banks just want to move to get off their books without having to clean all the problems up themselves
Another potential problem with bulk sales is that a lot of times, it can take awhile for you to get the actual deed to the property. The longer you have to wait for that deed, the longer you have to sit on that parcel before you can turn it around and resell it. So, before buying any bulk properties, make sure you’ll be able to get the deeds within a specified amount of time or your $5,000 investment is going to sit stagnant.
Also, there can be back taxes owned on the property. There is no way for you to find this out until you go through each and every property to find out how many taxes are owed. Usually the quickest way to do this is to go to the National Association of Counties website: www.naco.org. From here you can click on the state, then the county where that property is listed to access any information on back taxes. Just be aware that not all counties in the country are online; there should still be a phone number listed that you can call to access this information.
Banks will issue a quit claim deed on these bulk purchases, as opposed to a general warranty deed. That means as soon as this property is in your possession, you take responsibility for those taxes. Additionally, if there are any utility payments owed, those costs may transfer over to you, depending on what state the property is in. You’ll have to verify this information with each utility company associated with that property.
Obviously, there’s a huge amount of risk when buying bulk purchases. So, why would anybody in their right mind do it. Well, as much risk is associated with buying in bulk, there is also a potential goldmine. Let’s say you buy 10 houses for $50,000. Just assume that one or two in the group are going to be in such disrepair that you’ll practically have to give them away.
After you make the purchases, you’ll have to have someone go to each of the properties to inspect, secure and put a lock box on it. They’ll have to take pictures to send to you, since, of course, you purchased these properties sight unseen. Even the horrible ones – the ones you’re not sure you can even sell – will have to have a sign either in the yard or in the window directing potential buyers to call you.
Then the phone starts ringing. It might be a neighbor looking to expand their property. Suddenly, you have a cash sale when you didn’t expect it. They might not offer the full $5,000, but they might offer $3,000 or $4,000 because the property is in such disrepair they want to tear it down and get rid of the rats that have apparently colonized the place. In fact, it might be worth taking the extra time and doing a search to determine who those neighbors are and calling to see if they are interested in buying the adjacent property you want to unload. Or, you could donate the property and use it as a tax write off.
So, now that you’ve rid yourself of the unsellable property, you can turn your attention to the remaining ones. Assume you could only sell that bad property for $1,000. Then you had another pretty pitiful house that you could barely get rid of. But with the remaining eight properties, you were able to sell each at $29,000. That’s $232,000 in total notes that you have left. You can take some of those notes and sell them to recover your money faster, or you can hold onto them, it’s your decision.
Another reason some people are drawn to bulk sales is because you can typically get better deals up front when you buy in bulk. There is generally no negotiating because banks priced these properties to move very fast.
Just remember, although it seems like a great way to get a large collection of properties up front – particularly if you’re just starting out – there is more work and risk that goes into this type of purchase as opposed to buying one house at a time.
Regardless, as long as you got a little money out of the deal, it’s better than nothing. Take your money and move on to the next venture.
Ideally, if you can find these homes before they go into a bulk sale, you’ll be better off. They are often listed with realtors and have likely had a handful of price reductions but are still not sold. If you can go through a realtor instead of a bank in a bulk sale, the bank has to pay the back taxes, and you get a clear title to the property.
Some real estate investors like to take the risk on buying bulk properties and there’s nothing wrong with that. If you’re lucky, you can make a lot of money when you buy in bulk. Just remember that you are likely going to encounter some surprises, and not all of them will be good ones.