Ug Does Shortsales

[Timothy W.]

Had to get this off my chest.

I had a feeling and had a discussion with another investor that shortsales were going to become the new "wholesaling" or "flipping". I.E. the real estate investing strategy that anyone can do to the point that it loses value. My first sign of this was when my realtor started doing shortsales.... I have yet to buy one of his shortsales and I'll explain why below. The BIG SIGN came today when.....I bird dogged a shortsale that the owner losing the house did.... The person who didn't have the financial intelligence to not lose his own house was able to do a shortsale.....that's pretty friggin' scary. What's worse is he did a great job of it. Got 100k off the first position loan. I felt like Joseph Kennedy getting stock tips from a shoe shiner.

Not to go chicken little on this, but I have a prediction of something bad that is going to happen with this. It's the same thing that happened to wholesalers and flippers. They heard the term "wholesale" 3 years ago and bought property that was clearly overpriced but assumed that because it was a "wholesale" deal that it HAD to be a profitable deal. The same thing is going to happen with shortsales. The "flipping" gurus of 3 years ago will suddenly become the "shortsale" gurus of today. People will still want to flip property for quick bucks and will follow this trend. "Shortsale" is going to become the new hit thing and a lot of people will make a lot of money at it. It will also become the marketing term by unscrupulous people to move junk property.

I can see the fallout coming when the LTV is already too high and the "shortsale" brings the actual purchase price down to a corrected market level. The investor will buy at the corrected market level which will in truth be current market price point. The investor will try to sell at a profit which will place the property above market price point and will incur holding costs while he or she comes to grips with the fact that he/she bought too high. How could this be? It was a "shortsale".

I think you can see what I'm getting at here. I've talked to some experienced investors on this topic (multi-millionaire investors, not amateurs) and they are telling me that the way they are protecting their positions when buying shortsales is to buy the shortsales that will positively cashflow. It's so simple, yet was completely ignored in pop culture REI for the past 4-6 years. The reason I don't buy a single one of my realtor's shortsales? They don't cashflow. Plus, I can wait 2 more months and they'll go REO and can pick them up for about half his "shortsale price". I certainly hope some folks pays attention and that the hard lessons that were learned by some people during the past half decade don't get lost as they go about purchasing shortsales. Don't fall for marketing. You are buying for NUMBERS and financial fundamentals never change.

Tim

P.S. My title is nothing against HomeVestors. I'm simply using artistic license to make the point that "everyone" is doing shortsales. I've met some good guys that have bought HV dealerships.