Mark, a real estate investor, came across a property valued at $275,000, for which the owner owed $265,000. While others may have second thoughts about the property, Mark agreed to make a deal with the owner. He got an "authorization to release" signed by the owner and approached the creditor¡ªin this case, a bank. He told them he was a friend of Sam, the owner, and was willing to save Sam from facing a foreclosure. He made it clear that he was willing to make a fast, all-cash deal with the bank, offering $150,000 for the house. The bank officer refused the offer, but Mark said that it was the best offer considering the fact that the house had considerable repairs. He faxed over the sales contract, a hardship letter from Sam and provided proof that it was beyond his means to repay the loan, carefully listing details about the repair work due and their estimated costs and his appraisal of the value of the property. After negotiations and a BPO appraisal, Mark closed the deal for $200,000. Sam got a fresh start at life, as Mark had made it a point to include the clause "payment in full without pursuit of any deficiency judgment," and the bank got rid of land and could write off a loan even though at a loss. Mark had lined up a rehabber who closed a deal paying $250,000 for the property, making his net profit $50,000 for one deal. This is a typical example of a short sale technique where property is bought at a discount from creditors who are highly motivated to dispose of the property in return for cash. The owners are also equally motivated, as they want to avert a foreclosure at any cost. The creditors usually want to avert the additional costs of going to court, hiring an attorney, the costs of foreclosure and the possibility of reselling the property. They want to get as much as they can. Usually, creditors are highly motivated when the payments are due for a few months and pending despite notice.

Short sales have made many a real estate investor rich, giving them a chance to buy property at a discount and making a quick profit, perhaps by flipping it. Though short sales are known to have made many investors rich, they have also helped many a homeowner get a second chance, to be debt-free and start over. You are not only making a profit but also helping another person, so it has to be handled carefully. With short sales, time is always of the essence. Another important factor is that one cannot flip a short sale property, so be sure you have the necessary resources to actually go through with the deal.

Planning An Exit Strategy

While planning on doing a short sale, be sure to be well prepared. Find out if there are other liens on the property and accurately judge the repairs, if any, and the value of the property. While approaching the owner, be sure that you sign and get the deed in your name and that you will not lose the deal in the last minute, wasting all your effort. The next part is to deal with the creditors, usually banks or mortgage financiers. Be sure that you approach them in the right manner and are able to negotiate a deal providing all necessary documents such as hardship letters. Never take no for an answer. Try till you get them to accept your deal. Be sure you establish good relationships with the officers, as they may be approached by you for another short sale. You have a commitment to help the owners, so be sure you do close the deal as promised and try to get the creditor to write off the debt. If you have planned carefully and even have more than one exit strategy, you will definitely be more successful. It will be better to think of how you will exit the property even before you actually purchase it, as it will help you determine if you will make a profit or not by going through with the deal, so you can choose the right property, eliminating mistakes and limiting the chances where the deal does not go through. If you are organized, you can move ahead at a faster pace rather than facing obstacles that you had not prepared for adequately. Planning exit strategies will help you choose deals that offer a better profit percentage and that are less risky to go through with. Thus, be sure to plan any short sale deal carefully, giving enough attention to each tiny detail to ensure the owner gets off the hook, free from his debts, and you get a property at a great discount.

 

Do you own real estate articles or stories and want to share with other investors? 
You have chance to win $100 Amazon Gift Certificates. We will give away 3 prizes for top authors each month!

Email your articles or stories to:  articles@buyincomeproperties.com

 

© Copyright 2001 - 2010 by BuyIncomeProperties.com               

 

 

Visit Real Estate Forums for every real estate investing topics!  Enter Here

    

Top of Page