Short sale or REO does it even matter?

Question

Don't you just love what you see when you take your dog for a walk?  There is a house that just had a Realtor sign put up yesterday. I knew it was going into foreclosure, but I had been told by the defaulted home owner that they had just defaulted on their 1st payment.  I know they might not have been truthful with me, but since all I get is voice mail heck from the real estate company listing it, I'm not sure if it is a short sale or if it has already been to auction. How would I find out, does it really even matter & what are my options?  The listing price is very good, less than 1/2 of what the defaulted owners paid for it at the height of the market. I've been in the home several times and know its condition is good for its age. I would be very interested in picking this up if I can. Since this is way out of my norm (tax deed auctions) I'm sure I'll need lots & lots of guidance from everyone here on BP. Please let me know what I need to know!! Don't be afraid to tell me if its not as good of a deal as I am hoping it is! 
Thanks in advance,
Cindi

C & J Metzger · Answer

Rob, 
I did a quick public records search online today & didn't find anything, not even a foreclosure notice.  I was thinking maybe its been filed, but not processed by the county yet.  
The house is an older 2 bed 2 bath that the defaulting owner paid $320,000 for. It is now being listed at $65,000.  That is a very fair price for the condition of the property. Even though there hasn't been a lot of movement in our area, that's still  a little less than 1/2 of the going rate.

Ryan Ohendalski · Answer

I am a RE investing newbie as well. I have only dealt with the Tax Sales at the court house, never any other kind. I am currently finishing up my first deal and it is a short sale.... first thing is understand that a SHORT sale is anything BUT short! But it has definately been worth the wait and patience in my case.
As one poster said earlier, the lister might be puting a low price to drive traffic, and this was the case with mine as well. However, we were sill able to get a great deal on it, but not quite as low as the listed price. We asked the listing agent what was the last day the bank was taking offers (many times there will be a deadline before it goes forward into foreclosure). Also, the agent can tell you if they have received offers that are below asking, or if the offer meets or exceeds asking. By law, they cannot tell you the exact price of other offers, can this will at least let you know if they have received a full price offer. 
Even after we won the highest bid, the bank then sent their own appraisors out to look at the house... if you think that the house is undervalued,... then they might as well. However, work with them and if you are the highest bidder, you will probably be the only person they are still dealing with. 
We are about to close and will do minor repairs and then begin renting. 
Stay  patient as it is a long process but can be worth it for sure!

Chris Martin · Answer

Regarding financing through an LLC... unless you have a well established banking relationship with a commercial lender, expect a lot of scrutiny of your personal finances, including debt ratios, credit scores, income, taxes, etc. Up through January of this year, for some banks around here at least, your net worth and investment success seemed to matter little.

You know the new saying, Real Estate always goes Down!

Mike Izquierdo · Answer

A short sale will have to go through a approval process which could take several months or even worse not get approved.

As far as being a good deal, it doesnt matter what its status is. Only matters how much you get it for compared to the market value and potential sales value.

C & J Metzger · Answer

Joel, 
Thanks for the info! So if I put in an offer should I go lower than asking? I'm still on the fence about this. Not sure how I want to come up with the down & such yet, but I cant beat the location (on my block) & it would give us a "foot in the door" from land to homes.  This is all very different than what I've done.  I'm also wondering if you know the answer to this, if I make an offer through my LLC, would they also look at my personal debt to loan ratio & such or just the LLC's capability? I hope this doesn't sound too naive, but  I'm really in uncharted territory here.

Joel Owens · Answer

If it's a short sale the listing broker could be LOW-BALL listing it to drive in multiple offers to a much higher price.

Then they submit all to the bank and go with one.If you list them at full market you won't get much action.

Usually after the bank does the BPO the bank will reject the highest and best and counter them unless the offer is close to market.

All I am saying is if it is a short sale don't get your hopes up.Even if it's an REO it will go probably much higher than list.Usually the asset manager will give the listing exposure for 7 to 14 days and see what comes in for the offers.

For offers they will look at cash,contingencies,time to close,type of financing if any,amount down,etc.

Hope it helps.........

C & J Metzger · Answer

Thanks for all of the info folks, 
James I am planning on stopping by the RE office tomorrow.

"Another yellow flag is what you said, "...there hasn't been a lot of movement in our area." 
 The area is selling, but most of the foreclosures & REO's are asking at or just below current market prices. There are deals going on though.  As to what I would do with it, 1st thought would be to rent it out for a year or so, The comp rents for a 2 bed 2 bath in this area are around $800-$900 per month. If I put $20,000 down I'm sure the monthly payments would be less than $450 per month. With out doing the math & just "eyeballing it" that sure looks like the 50% rule of thumb to me. But please "school me" if I'm way off base!!

Chris Martin · Answer

Regarding "Short sale or REO does it even matter?" keep in mind short sales seem to take forever (several months is common) while REOs can sell and close relatively quickly. Just because the list is 1/2 of what the defaulted owners paid... if you don't have a plan for what you are going to do (rent it? sell it?) and have defensible numbers showing profitability somehow, then it isn't a deal. Another yellow flag is what you said, "...there hasn't been a lot of movement in our area."

James Hiddle · Answer

If they're not responding to you via phone calls then I suggest paying them a visit in person.

Rob Gillespie · Answer

If it is an REO, there is a better chance of getting the deal done quicker. You can look on public records in the county you are in to see the status of the foreclosure. This will tell you if there is any other liens too.