Short Sale Op

Hey everyone, just gotto say I am soaking up everything I can on this site and will hopefully be providing what insight I can to others as well, but I digress!

I am looking at my first deal, it is a short-sale about 70-80% of market value! I'm trying to get in contact with the owner to take a tour and make sure there are no major problems, but with the short-sale situation it appears that the owners just need to get out! The short-sale is supposedly already approved (with 24-hour notice), which I guess is my first question because I thought they typically needed a month? In addition to that I was thinking about:

1) Getting an FHA mortgage and living in it for a bit, then renting it out afterward.
2) How I would go about renting the property out after I moved, I currently have an LLC taxed as sole-proprietor, would I just have the tenant cut my business a check instead of me personally?
3) I don't have the cash to put down 20% for a mortgage for an investment property, but I was thinking since it is ALREADY below market value, I could just flip it right off the bat. The RE books I have read about this say it is possible but I don't see it actually going through unless I actually have the money ready to go from the bank. I have to pay the owners before I re-list it don't I? And in the meantime I can just live in it?

Also, since this looks like it is a real deal (I've been looking for months at something in my price range), should I lock up the owner by making a conditional offer of some sort with a deposit that doesn't allow them to sell to someone else?

My FICO is about 730 right now, with about 30K of outstanding student loan debt, I shouldn't have a problem getting approved for the mortgage.

Any advice, suggestions, etc would be appreciated.

Edited: 06/26/2010 at 07:07AM

Shane M

Real Estate Investor · Ann Arbor, Michigan

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Feb 01 '09, 06:15 AM

After checking some other listings in the neighborhood online there are a few other properties going for 85-100K being sold "AS IS" in the same neighborhood (opposite side of sub). The deal house I'm looking at is not listed "as is", and is actually leased out right now (so im assuming it is habitable). It has some paint flecks and minor cosmetic blemishes outside as well.

Edited: 06/26/2010 at 07:07AM

Shane M

Real Estate Investor · Ann Arbor, Michigan

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Feb 01 '09, 08:37 AM

And apparently it has been on the market for about a month, they do have it listed as SHORTSALE APPROVED instead of just SHORTSALE which I understand is not the same thing.

Which does that mean they don't have room to negotiate because the bank has to sell it at that minimum?

Edited: 06/26/2010 at 07:07AM

Dave P.

Real Estate Consultant

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Feb 01 '09, 11:55 PM

Shane,

I don't want to bum you out, but I suggest that you shop around a bit before falling in love with this "deal".

If the short sale is truly "approved" then there is a short sale approval letter stipulating the price (and terms) for which the sale shall take place. This implies that there has been a previous buyer and that buyer has backed out of the deal.

In a very large majority of occurrences, the actual short sale approval letter is written specifically for a buyer. If that buyer backs out, then the approval letter will need to be re-issued. To make a long story short, it is very likely that the house may have been approved for sale for a previous buyer that has since walked away.

Based on what you have written, this deal does not look like a "great opportunity" necessarily.

For example, you wrote:

Okay price for the Short sale is 79K, first comp I checked in the neighborhood is listed at 119K (but has a non-attached two car garage), house contructed in 71. The deal house was constructed in 1970.

You cannot consider the price of an "active listing" as relevant in valuating your purchase. The list price should really be called the "last failed to sell price". Therefore, you 119K listing isn't worth 119K....it's worth less. How much less is the real question.

Additionally, you wrote that there were other properties going for 85-100K on the "other side" of the subdivision. It seems as if you have written them off as not comparable because they are "as-is". Your short sale would most likely be an "as-is" purchase as well.

Not trying to bum you out, just trying to help you out.

Edited: 06/26/2010 at 07:08AM by Dave P.

Mark Yuschak

Rehabber · Grand Blanc, Michigan

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Feb 02 '09, 12:09 AM

One more thing to add:

The asking price of a short sale really doesn't mean anything. All offers on a short sale must be approved by the bank. Often times you will see short sale properties listed well below market value in order to generate several offers as quickly as possible. Just because it's listed at 79K doesn't mean it will sell for that much or lower. It could very well sell for more if the comparables truly are a lot higher.

Edited: 06/26/2010 at 07:08AM

Shane M

Real Estate Investor · Ann Arbor, Michigan

118 posts
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Feb 02 '09, 06:49 AM

Thanks for the info, the more I thought about the other "As Is" properties the more I realized this one (although not listed as such) will probably be an as is sale. I did use some of the free resources listed on this site for comps and there have been various sales for between 90 and 100K over the last 6-12 months. There has also been one for 45K..... ouch

So I'm thinking this isn't really a great deal after all, which does bum me out, but fortunately I know not to fall in love with a property.

Looks like I'm back to looking

Mark - I am actually not to far from you in Michigan, perhaps I'll PM you with the details if you want to check it out.

Thanks guys!

Edited: 06/26/2010 at 07:08AM by Shane M

William Spencer

Real Estate Investor · Houston, TX

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May 04 '09, 08:41 AM

It sounds to me like a listing agent submitted a short sale request to the bank on behalf of the seller and the bank approved it ... pending an acceptable offer. If I'm right, you can offer whatever you like. The bank will either accept it or not. (I agree with Mark). I've bought a couple of these in the past. I usually submit an offer I can't refuse and see if they'll except it. If they do ... the deal is real.

Edited: 06/26/2010 at 08:08AM