Every Short Sale Opportunity isn’t Worth Chasing – More Time – Bigger Checks

by | BiggerPockets.com

untitled by paper houseIt is no secret that the business of buying real estate directly from the bank prior to it being foreclosed on is both in style and highly lucrative. The issue a lot of “Short Sale Specialists” have revolves around making the deal work on the front end. Time is our most valuable asset as Real Estate Investors; we can never get it back once it is lost. A lot of time is being wasted on the pursuit of hopeless short sale opportunities and I would like to take a few moments to share with you exactly how you can avoid wasting time.

In the business of Short Sales, your #1 enemy should be houses or condos that are pretty. I would consider a home to be pretty if the work needed does not exceed paint and carpet. Believe it! When I got started, I wasted several months of my time pursuing every single Short Sale opportunity without a screening process or a system in place for knowing my deal was going to work. Negotiating discounts on pretty houses is not recommended and it is not a viable business model. The lending institutions are stiff as nails on these types of properties and the best an investor would be able to do is 80%+ for the discount. Those numbers don’t work at all unless you’re looking for a personal portfolio of rentals and lease-option properties. The reality is that most investors are wholesaling. Even if you don’t consider yourself a wholesaler, you are still playing the middle man/woman somewhere in this business. A much stronger discount than 20% is needed to make room for your check to be cut. We want to be in the 35%+ discount range and in most cases that will not work with the pretty houses.

So what kinds of homes should you become best friends with?

  • Ugly Homes
  • Homes with large 2nd mortgages
  • Homes with a lot of equity

Sometimes there are areas that lenders do not discount and a little bit of research is required to determine what subdivisions to stay clear from and which ones to pursue.

We need to know:

  1. How many homes are foreclosing?
  2. How many homes are ending up at the sale?
  3. How many homes have the opening bids at less than what is owed?
  4. How many homes are going back to the bank?

With this kind of information about a particular market, you can do two things. You can take what the market will give you or you can move to another market. A big ship takes a long time to turn around, so unless you are going to jump, you are going to have to wait. You really don’t care how many go to the sale per se, but you really are concerned about what percentage of the homes that go to default actually go to the sale and how many of those go back. If see a trend of opening bids starting lower than the payoff on a home, those are super deals.

So it is very important to sift through the big questions. Another point you may want to clarify is the fuse on the properties – meaning the length of time between default and sale. Remember these: Is it really Ugly? Does it have a big second? Does it have a lot of equity? In some cases, you may not want to do a short sale because there is a lot of equity there.

**NEWSFLASH** If you do a forbearance agreement with the bank, they do not charge you interest. The definition of a workout is the ability to stretch out the payments on a home instead of paying the arrears in full.

The objective here is to create more time and resources to chase fewer deals that will actually give you a back end pay day. The key is staying away from the semi to fully blown pretty houses that are pretty much stuck at 80%+.

Blessings to your Real Estate Investment Successes,
Milton B. Yates

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  1. Many of the best homes the banks have are sold-off to the big boys in bulk. Whats left are the beaters.

    I often have clients that ask me what I think about them buying a home at auction (a bit different than a short sale). People don’t realize they’re buying a home sight unseen, occupied by angry people, no inspection, no real appraisal opportunity, and they will need cash in about 3 days or less.

    If the house turns out to be junk, forget about suing. It’s an as is deal. Not the best way to buy your first home.

  2. Nice article that I think should be given credence to. Whether it is a Bank REO or a distressed sale, the ugly houses are the ones that potentially offer the most profit. People can see past paint and carpet. They can’t see much past damaged systems, drywall, etc.

    Michael also makes a good point about sheriff sales. Buyer beware. If you are purchasing site unseen, especially where the owners are being kicked out of their home, you might be in for something that you don’t expect if you are the successful bidder!

  3. I agree we buy bulk reos and scraps (SFR) single family residence and the most profitable properties are the ugly, stinky, smelly run down property in a good to great location with a low crime rate and decent school district. We have some spread sheets I thinks posted in the article section of our company website that gives you a good base line to start your real estate investing career. You can go to simonvolkov.com and click on the articles to see if it is still posted.

  4. Purchasing site unseen, I cannot even imagine. Maybe if you have lots of pictures and I mean LOTS…to include maybe a video as well of the property and surrounding properties. You should also be familiar with the location or have a trusted and knowledgeable realtor or friend who can scoop out the location for you.

  5. Many short sale deals don’t ever get approved. Many agents and professionals are trying to do short sales without any training or experience. Educating yourself about short sales can help you pick which deals are worth the time and effort.

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