Short sales. Pros and Cons for newer investor?

Question

Good Morning Everyone,

I have recently begun looking for my fourth real estate deal and I noticed a lot of short sales popping up on the market. I know the term short sale has always had a negative connotation in my experience so I was just wondering if everyone would like to share there knowledge of them and what to pay attention too. If the numbers work is there any other indicators that would make it a bad deal? Also, is there any specific strategy that works better with them? (Flipping, BRRR, Buy and hold, etc.) I have done two flips and am currently house hacking my primary residence so do you think this is too much of a task for someone with my experience level. Looking forward to hearing from all of you!

Cameron Rockwell

RockwellRealestateLLC

Jeff Copeland · Answer

@Cameron Rockwell:https://www.calendarwiz.com/calendars/popup.php?op=view&id=144201755&crd=pro

(The target audience is realtors, but there appears to be an option for non-members to register)

Jonathan R McLaughlin · Answer

@Cameron Rockwell biggest advantage is much less competition. Active pros will often shy away given the likely extended timeline and ordinary buyers are scared of them. Big difference between a bank approved short sale price and one that’s not. I’ve found buyer brokers of limited use and lawyers necessary but YMMV. Sometimes banks don’t get that “short sale” means the property is worth less than retail, regardless of their loan.

It’s much more streamlined now, but there are still wildcards based on the banks needs-one quarter they might not budge off their price, the next quarter the order comes down to take whatever haircut is necessary. Having your offer in the q can be good but don’t leave it open ended. Just make a regular ish offer with an end time and let their process work.

Check if their is more than one bank involved (ie a second mortgage) A’s that will extend the timeline.

The broker working with the owner can often be as frustrated with the bank as you, so it’s a situation where your interests are more aligned than usually.

These can be very rewarding. We have experienced over 100%+ returns on a few of these though I expect the margins are narrower now.

Steve Morris · Answer

"I noticed a lot of short sales popping up"

My biggest issue, if it is listed, is the RE agent is almost always a rep of the owner and NOT the bank.

This means that an owner just wants out, but unless the broker is working for the bank, you'll probably have to do the due diligence of finding the right person at the lender to approve the deal.

On small local banks or C/Us may not be a major problem, but you deal with a large bank like a Chase (that is not a comment on their integrity just that they are big) finding the right person to approve is like going through a labyrinthine maze.  Plus it'll probably be a chain of approvals since on these deals banks may lose so everyone is in CYA mode.

Jeff Copeland · Answer

Not sure how it works in Virginia, but here in Florida to make an offer on a short sale, you typically have to give the seller 60-90 days from contract acceptance to seek bank approval.

So, you open escrow as required by the contract, and then wait...

And wait...

The clock on everything else (inspections, financing, etc) doesn't start until you have bank approval, which is good. But it also means you tied up your deposit money and put yourself in limbo for 2-3 months. Often only to have the bank come back and say "No. We want more for the property than what you and the seller agreed to".

If you have the time, and it isn't keeping you from pursuing other deals, taking a shot on a short sale can be a great way to acquire property. Just make sure you understand the ins and outs of the offer/contract, and, in particular, the short sale language. (Here in Florida, we have a short sale addendum to the contract, so it's relatively easy to see the key differences).

Cameron Rockwell · Answer

Thanks a lot Josh. I will certainly take your advice. I thought it was very insightful that this is a circumstance where the realtor and the buyer are in a similar predicament. Thanks for the tips!

Cameron Rockwell · Answer

Thank you Brett,

Glad to see someone with a lot of short sale experience. It sounds like as long as you don't mind having capital tied up it can be a good way to acquire a property. Thanks for the advice.

Brett Goldsmith · Answer

Short sales are speculative. You don't know if it's a good deal or not until you go through the process. They can take awhile and at times they don't get done. Nothing truly negative from my perspective. Most people who have sour experiences are the ones who aren't patient or who's expectations don't get met.

Cameron Rockwell · Answer

Thank you Steve,

I appreciate the advice. The broker situation is certainly something I will look into!

Cameron Rockwell · Answer

Thank you Jeff,

I'll have to do some more research on how Virginia does them. I am sure the language is important and understanding your exit strategies is probably most vital.  I also intend to sit down with a lawyer and get some advice on what exits I can include in the contract.

Thanks for the tips!

Short sales. Pros and Cons for newer investor?

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