Mortgages & Creative Financing

Building a Pipeline of Short Sales

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short sale pipeline

Any investor or homebuyer that has worked through a short sale in the last year knows what a lengthy process this can be. I actually bought a new personal residence in 2011 and it took 8 months for the bank to finally approve our offer. Of course, this was after multiple denials and re-offers, appraisals, inspections, etc.  Because the process took all of 8 months, we eventually resolved that the bank wasn’t going to approve the offer and had mentally resigned ourselves to this fact. As far as we were concerned, if the short sale eventually did get approved, it was going to be a pleasant surprise. While 8 months isn’t the norm with most short sales, waiting multiple months to get an approval (or denial) is not uncommon.

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For many investors or wholesalers, it’s very difficult to build a business model around an acquisition strategy that can take months just to get a “yes” or “no” decision. I have found that many of the short sales we are involved with as investment properties take upwards of 3 months to get approved. At first, I was hesitant to use short sales as an acquisition strategy because I didn’t want to get muddled down for months at a time waiting for a bank approval that may or may not come.  However, as a turn-key provider always looking for rock bottom bargains, I couldn’t overlook the opportunity that the short sale market presented.

Once we committed ourselves to the short sale market, it became a matter of building a pipeline of short sale contracts. The idea being that after a few months of filling up the pipeline, we would get to the point where we are consistently closing on approved short sales.  Of course, this requires that we are continually adding short sales to the pipeline as well. Keep in mind that for every 2 or 3 contracts that get put into the pipeline, we may end up closing on only one of those.  Thus, if I want to consistently close on 3 short sales a month, I probably need to have 6 to 9 submitted every month as well.

As an aside, 3 months can be a very long time in a real estate submarket. Some of our short sales don’t go through because we choose not to move forward, not necessarily because of a bank denial. If a neighborhood experiences decline over a 3 month period as a result of foreclosures and there aren’t any newer comparables to work with we may choose to walk away from a property. It’s very important to keep a close eye on the submarkets and neighborhood you are buying in. In this volatile market, it’s not uncommon to have a detrimental shift in values in a short period of time that can kill your numbers.

Whether you are new to investing or a seasoned professional, working in the short sale market is a very viable strategy right now. While the thought of getting entangled with a bank for a one to three month period of time may not sound like fun (especially for a single deal), the principle of building a pipeline of short sales can make the time investment worthwhile.

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience...
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    Replied about 8 years ago
    This tip on short sales should come in handy for those looking for a way to come around the market. Thanks for this helpful information. It makes you realize some of the opportunities you can take advantage of out there.
    Replied about 8 years ago
    Sounds like a great strategy, but what do you do about tying up your cash in earnest money deposits? In our area, many or most of the listing agents won’t submit an offer on either a short sale or an REO that doesn’t include a minimum of $2000 EM. Admittedly, I’m new to this area. When I was making this type of offer in another area before, the check was customarily held by my agent’s broker, i.e., not cashed, until a binding contract was entered, so it wasn’t an issue. I can’t get a read on what they do with it here…it seems to vary by agent, and a lot of them have the title company hold it in their trust account…i.e., they cash it. Since I’m using private money to purchase and rehab, I don’t really have the cash to tie up for 6-9 offers per month.