Help! Trying to decide whether to walk from short sale deal

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Help! Trying to decide whether to walk from short sale deal

Jeffrey Hayes
Investor · Tucson, AZ · Member since 2015 · 64 posts · 3 votes

Hi,  I'm a real estate broker from Tucson, Az and I'm just about to close on my first flip deal which happens to be a short sale.  I made my offer on this 3 bed 2 bath townhome in Tucson, Az back in August and it's on of the most poorly run transactions I have ever been involved in.  Long story short my offer of $86,000 cash was finally accepted, however I just recently found out from the listing agent that Wells Fargo is not going to pay me a commission because I'm a broker.  I managed to work out a deal to get half of the listing agents commision however.  I just received the paperwork today(the short sale agreement which I should have received months ago but didn't) and I read that Wells Fargo will not allow me to resell property until 90 days after I close which will be on Jan 7, 2016.  The numbers work, however, I planned on renovating the home in 30 days and then quickly listing it.  Even though the market in Tucson, Az is currently appreciating slightly I'm not sure how it will be on Apr 7, 2016 and I'd hate to have the market start trending downward.  I calculated that my profit will be in the $14,000 range so it's not a huge margin.  Does any investor out there have any advice on whether I should stick with the deal or walk from it?  Any advice would be greatly appreciated!  Thanks

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Michael Leung
Investor · Tucson, AZ · Member since 2015 · 54 posts · 27 votes
10y

Tucson is a extremely competitive market.  $14K profit on a $85K inital investment is a great return in Tucson right now.  To be profitable in Tucson, you have to do volume.  There are too many people chasing too few deals.

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    $14k is pretty thin.  Just a couple things go wrong and your profit disappears. 

    Complicated transactions are par for the course with short sales.  I no longer deal with them as either an investor or as an agent.  

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  • Account Closed
    Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    I agree with Russell.  On a short sale-rehab-flip  $14,000 is a razor thin margin.

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  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    if you are worried about your market changing in ninety days then you don't have a deal 30 days rehab, 30 to 60 plus days to sell 45 to 60 days to close 

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  • Tabor Tollefson
    Tucson, AZ · Member since 2013 · 55 posts · 9 votes
    10y

    As a Tucson agent, I'm fairly confidant you won't see a dip, and seasonally in Tucson, April is a better time to sell. Like the others though, I worry about the $14k margin being to small. 

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    Yeah, $14k is thin. But for the future, agents are Never allowed a buy's commission when they are the buyer in a short sale. The 90 day resale restriction isn't imposed by WF, this means it was a Fannie loan. Both of these facts were available prior to contracting, if you know to look. BTW that restriction is 90 days until your closing date on the sale, not executing a contract for sale. An FHA buyer would have to wait 90 days from your closing to sign a contract though, just like for any other flip.

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  • Gary Parker
    Real Estate Professional · Salt Lake City, UT · Member since 2010 · 609 posts · 163 votes
    10y

    In my market it sure seems like many investors including myself sometimes are working on thin margins.   But, the rehabs are going under contract very quickly.  

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  • JD MartinBusiness Member
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    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    On a house that I had to do a rehab on no way would I work on that low of a margin, unless I first squeezed more money out of the unit as a rental. I can work a part-time job and make close to that with no risk and half the headache. Now if your plan was to rent it for a year or two and make that, then flip and and make it, $30k isn't a bad return on $86k. 

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  • Michael Leung
    Investor · Tucson, AZ · Member since 2015 · 54 posts · 27 votes
    10y

    Tucson is a extremely competitive market.  $14K profit on a $85K inital investment is a great return in Tucson right now.  To be profitable in Tucson, you have to do volume.  There are too many people chasing too few deals.

    1Reply
  • Michael Leung
    Investor · Tucson, AZ · Member since 2015 · 54 posts · 27 votes
    10y

    Also 90 days is the norm now with the new FHA/VA rules

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  • Jeffrey Hayes
    OP
    Investor · Tucson, AZ · Member since 2015 · 64 posts · 3 votes
    10y

    Thanks to everyone for the quick responses! I just called the title company and they still aren't sure if that 90 day no sale restriction that Wells Fargo will place on the title means that I cannot list the property for sale on the MLS until 90 days after I close escrow or if that just means that escrow can't close for the new buyer after I buy and rehab home until after day 90 after I close escrow? Ideally I would like to rehab this home in 30 days, immediately list it, and let's just say it's on market for only 15 days I could then set the closing date for 45 days later(which would satisfy the 90 day restriction on my title for the over 120% of what I paid for the house($86,000) clause. Is that how other flippers deal with this issue or do they just wait the full 90 days before they even list the home they just renovated? Please advise. Thanks

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  • Michael Leung
    Investor · Tucson, AZ · Member since 2015 · 54 posts · 27 votes
    10y
    Originally posted by @Jeffrey Hayes:

      Is that how other flippers deal with this issue or do they just wait the full 90 days before they even list the home they just renovated?  Please advise.  Thanks

    With FHA/VA loans, you have to wait the full 90 days before listing it. You could list it before the 90 days for cash or conventional loan only deals

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    @Jeffrey Hayes Yes, as per the Fannie restriction you'll be receiving, you can list, market and contract for the sale...you just can't Transfer Title within the 90 days (for 120%+).  @Michael Leung Slight correction to your comment, you can list it prior to 90 days with an FHA buyer, they just can't "execute the purchase contract that results in FHA financing" within 90 days.

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  • Michael Leung
    Investor · Tucson, AZ · Member since 2015 · 54 posts · 27 votes
    10y
    Originally posted by @Wayne Brooks:

    @Jeffrey Hayes Yes, as per the Fannie restriction you'll be receiving, you can list, market and contract for the sale...you just can't Transfer Title within the 90 days (for 120%+).  @Michael Leung Slight correction to your comment, you can list it prior to 90 days with an FHA buyer, they just can't "execute the purchase contract that results in FHA financing" within 90 days.

    Yes...thats what I meant. If you accept a FHA/VA offer before 90 days....all the docs have to redone at the 90 day mark.

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  • Stephen Barton
    Real Estate Consultant · Indianapolis, IN · Member since 2014 · 322 posts · 238 votes
    10y

    I agree with what everyone here that is saying to just let it go @Jeffrey Hayes. In fact, I can speak from experience on this matter as I just had to walk away from a short sale too! I learned that you cannot benefit twice due to a short sale. Basically, when you get a short sale you cannot get a commission too. Even if you took a commission from someone "on the side" you could be looked at by a government entity (not sure which one) for a crime. 

    Obviously, I am not an expert on this as I am not even sure on what law would be broken but I was told the same information like it was common knowledge and should have already known this. I have done a few deals in my two years of experience and I have to say there is ALWAYS that "unknown" factor that comes up. Some material defect you didn't plan on or maybe something that comes up later down the road. Plus, let's say you did the deal. You put in your rehab costs and then let's say you were able to list it on April 7, 2016. Have you taken into account your holding costs like utilities, taxes, etc? It all really adds up. 

    I know you feel like you lost but do not look at it this way. Look at this as you did not do a deal that would have been really thin! Now, you get to take the same amount of money and put it toward a REALLY good deal. Out of all of the actual "mover's and shaker's" in my market: None of them will do a flip unless they make AT LEAST $20,000. When you go into a deal with that mindset you will do fine. Break one of the first rules then you could be set for disaster. To date I have only done 1 flip so I am not an expert, but I have done 50 wholesale deals closer to 100 transactions. Just wait until the next amazing deal comes your way- you will see! There is always something new around the next "turn". At least you still have the option to walk! Taking the time to ask the bp community shows that you are going to be very successful in real estate. Hang in there!

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  • Lawrence Robinson
    Flipper · Columbia, SC · Member since 2015 · 66 posts · 29 votes
    10y

    Welcome to BP, Jeffrey Hayes. A 14% return means your margin of error is wickedly low. Changes in any of your projected costs will decimate your return. For example, based on the age of the house, it will very possibly need a new water heater. Also, inspections invariably require unanticipated repair costs. Any what if your buyer has a buyer's agent, that's a minimum of $2,600. It sounds like your business plan has a few holes in it; but just remember, prudence will keep you in the game. Wish you the best!

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