It 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:
- How many homes are foreclosing?
- How many homes are ending up at the sale?
- How many homes have the opening bids at less than what is owed?
- 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