Mike's Blog

Today I had the pleasure of trying to break a bulk REO package deal down into an investment structure rather than a complicated series of hundreds of houses. The guests' name was David, a professional marketing consultant who was trying to understand the process of Buying bulk REO packages and then carving them down into smaller pieces.

The process of dealing in a volume of properties that are scattered across the country can be a bit overwhelming. Developers Capital Realty, LLC, has a plan to bridge this process, and will work with selected Realtors, Property managers, contractors, Title Agents, Mortgage Brokers and Rehabbers.

It would be more daunting execpt for a a little social networking Professional Networking group called Active Rain.

After our lunch today in South Fl, at the trendy Nickys On the Beach,  I took the time to start working on creating a different view towards the process.

Yes, this is a very complex puzzle. However, nothing is impossible if it can be broken down into basic tasks, and  executed in an order that achieves the expected results.  The biggest problem I have seen in the REO Bulk business was that NO ONE was taking it down to the process of getting to the street level. Buying, cleaning, renting , selling, leasing, managing 3000 houses..... How can this be done?? 

On my way back from South Fl today, I wrote this reply on my blackberry...

Here is my start to the puzzle...

David

  I will send a few links over later that will save some searching as you spend your time in due dilligence.

The key in my opinion is in possessing an exit strategy for our partners (investors).

Our bottoms up approach to this puzzle created a view of an unrealized revenue stream that is not being structured in any other scenario I have seen. Our goal is to capture a very sizeable price of this huge market before its gone.

If you were to imagine our product were widgets of any sort that you feel familiar with, then it may make you feel more comfortable with this deal. Try this....

Lets imagine a truckload of pencils. Imagine there has been a steady drop in the value of pencils and the pencils are piling up in the stores. So someone sends a truck around and picks up thousands of pencils and they are now just sitting.

Everyone in the news talks every day about the price of pencils falling and the impact its having on the whole economy. Its common knowledge that the market for pencils will recover at some point but right now the big pencil pencil clearing house is willing to sell them at less than half price if you can buy a truckload at at time

Now no one needs that many pencils, but a group was formed to find a number of buyers that could purchase in bulk and sell off in smaller lots of boxes at a time and still retain sufficient margins to sell later when the market recovered at less than retail even in this market

Those who could afford to wait could rent the pencils for a while to create cash flow and then sell at full price later. The ones who could buy half a truckload or more could afford to make a nice profit by selling off for a ten percent quick return and still have quite enough profit left for down the line smaller lot sales.

The group who set up this whole process ( Developers Capital Realty) is able to make fees and commissions at every level and share in the margin spreads at each level.

Of course, as the lots of pencils get smaller the prices are closer to the retail price and therefore the turn time will be longer. However, It's forecast that pencils can be sold for 85 percent of current value even in this slower market. But in any event, there are commissions and fees plus over 30 percent of margin spreads to be split up from truckload to box pricing.

David, it only seems more complicated because our REO situation involves houses and properties. But our job is to establish the players and set up the needed established professionals to facilitate the process from soup to nuts, from large bulk packages down to small groups of homes, down to the end user finally moving in and calling a property a home.....

Our plan will show that we can assemble the packages, purchase them in bulk at reduced rates, and then sell them off thu carving it down into smaller packages until it reaches street level.

Its really a matter of logistics to handle the flow, set up property management, and arrange for end user financing or rent to own scenarios.

Our goal is to present this as a total investment package rather than as an episode of Flip This House.

I will follow thru with appropriate material to assist your ramped up learning curve.  And maybe in my next example I will use something better than pencils, but after days on the road setting up the vendors that will be involved, its the best I can do today.

David, It was great meeting with you today, I hope this will help with explaining this concept to your contacts in the financial markets...I don't want them to envision that they have to get involved beyond expecting a decent return on thier investments.

Respectfully,

Mike Norvell Sr 

Developers Capital Realty, LLC