Short Sale Investor: Not All Real Estate Short Sales Are Created Equal

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There are different kinds of short sales: some are direct from the seller to a buyer who is going to use the property as a principle residence or investment property, and others are to an investor who is planning to flip the property for a profit. The flip can result in a back to back closing, or the investor doing a quick rehab and then re-selling.

Here’s a look at short sales that investors like us might want to acquire and then flip for a profit.

Jackie: We’ve learned through experience that all short sales are not created equal.

Bill: Absolutely…..some make money and some just give you headaches and experience! I like the ones that make money!

Jackie: First it’s important to determine if you really have a short sale situation. The homeowner needs to owe more on mortgages and closing costs than the market value. They need to have a legitimate hardship and be motivated to do a short sale rather than let it foreclose or file bankruptcy.

Bill: The seller has a big part to play in the short sale process. They need to supply the required documents for the short sale submission, updates as requested, have the home available for showings, open houses, BPOs, and any other needed times. If they are hesitant when you explain their part in the process, it’s probably going to be harder to get their cooperation as time goes on.

Jackie: You need to analyze the deal…..know the difference between a good short sale opportunity that will make a profit, and one that won’t. Some new investors take every short sale they can find, and are dismayed to see that a large number of them will fail or never yield a profit. Why? Every homeowner facing foreclosure is not a good short sale candidate, and even fewer properties are good back to back candidates. It’s not as easy as submitting an offer and then sitting back and waiting for an answer from the lender.

Bill: Evaluation is critical. It’s not about numbers, it’s about quality.

Jackie: How close is the sale date? We like to have at least 30 days before a scheduled foreclosure sale. Some lenders are easier to work with than others. Just recently we took on 2 short sales with only 2 weeks to the sale date. We presented complete packages with our offer on both. One was Fifth Third Bank and they postponed the sale. The other was Litton (who is notoriously difficult to deal with) and they went ahead with the sheriff’s sale.

Bill: We wouldn’t typically take a short sale with less than 30 days, but both of these had great profit potential, so it was worth the effort. These properties both had highly motivated sellers, and knowledgeable, competent Realtors. They were in desirable areas and at a price point affordable to a large number of buyers.

Jackie: We look for properties that will be attractive to buyers. Properties that are not listed, or just listed are often the best. However, if they have been listed for some time above market value (hoping to avoid a short sale), it could be a good candidate when the seller accepts that a short sale could be to their advantage.

Bill: We do short sales nationwide, and often never see the home. We need to rely on the local Realtor to supply comps and information on the marketability of the home. This is where it gets tricky. We need to assure ourselves that the Realtor is competent, understands the local market and we can depend on them getting the information we need to analyze the potential short sale.

Jackie: We are really picky about which Realtor’s we will work with. This goes back to communication and the rapport you build with the various members of your team.

Bill: There are many other things to consider:
• The Seller cannot file bankruptcy during the short sale process
• Is the home rented? Are the tenants cooperative?
• Is it 4 units or less. More than 4 units is a commercial short sale.

Jackie: Bottom line is you don’t want to take every short sale that is presented. Your goal is to help the distressed homeowner avoid foreclosure, while making a profit for your time and effort. Despite your best analysis, you won’t always profit. Some will go to foreclosure and some will need to go directly A-C. You can however, raise your percentage of profitable short sales if you take the time to evaluate which ones have the best chance for success.

Bill: Just remember……. It’s not the size of your pipeline, it’s what you are able to do with it!

Photo: Susan Goulding

About Author

Bill and Jackie Patterson are Nationwide Short Sale Investors. Both licensed Realtors, they have an eclectic background including development, construction, apartments, and restaurants since 1980.

2 Comments

  1. I found your post very interesting. Being located at Ground Zero (Las Vegas) and specializing in Short Sales, the majority of lenders require an “Arm’s Length Transaction Affidavit.” The terms of these forms can include any or all of the following:

    The seller can not stay in the home after closing;
    The buyer cannot sell the home for at least 90 days.

    Just with those two exemptions, along with the fact that most banks are asking for fair market value as the agreed-upon selling price, how can an investor profit from a short sale?

    Thanks,
    Mark

    • Jackie Patterson on

      Mark,

      A good negotiator can get an approval letter without the 90 day seasoning. As far as the seller staying in the home, you would not want them to since you are buying the home and then re-selling it. “Arm’s Length Transaction Affidavits” are pretty much always required, and basically are to show that the seller is not related to the buyer or Realtors. Sellers are not allowed to profit from a short sale.

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