Making Money with Short Sales

[John Romero]

Hi Everyone,

I just attended my first local real estate investment meeting. It was a very good experience to meet others, as well as keep up to date with the latest trends.

The group leader, who is also a real estate lawyer did an excellent job explaining topics and engaging the group. He touched upon certain topics such as Short Sales and the majority of the people in the room were making good money with "Short Sale Flips". I understood this as locating sellers in distress and offering a below market offer on their home. Then negotiating with the banks to agree to the offer while you're soliciting buyers to buy the property you are negotiating for more money than you're buying it for.

They use transactional funding "bridge funding" to secure the deal, and make a quick dollar. For example

FMV = $100k
Offer/Agree to = $60k
Sell to buyer for = $70k
Turn a profit of = $10k

Supposedly, the investor never "Holds" the property for longer than a day or two. While they're working out the deal with the seller/bank, they're soliciting buyers so the same day they close, they sell the property and turn a profit.

Am I reading into this correctly?

[Scott Hubbard]

Originally posted by Mack77:

I should have said gross income, not 'profit' on the OP.

So a "short sale flip" is exactly the same as wholesaling?

If so, it would explain how 'wholesalers' are able to get in on such discounted prices.

There are two types of short sale flips where you are holding for a short period of time( 1 to 3 days).

1. Retail Strategy - this is where your marketing to an end-buyer that is an end-user. Because they are going to live in the property, they expect to pay close to retail (usually (90 -95%) of fair market value.

This strategy works best when the property is turn-key and the end-buyer can move into without any rehab. You will also want to be able to utilize the MLS to market your B to C transaction. The problem with this strategy is your end-buyer will need to be cash or conventional because of seasoning issues with FHA.

2.Wholesaling Strategy is where your end-buyer needs to be a cash buyer. Wholesaling is price dependant so much of your money is won or lost in your ability to negotiate a great purchase price from the lienholders. Some properties, usually because of condition or location, will be wholesale only. Your buyer pool is mostly buy and hold investors and rehabbers who need to take on risk and will usually fight you for every dollar so will receive a 1 to 4% fee typically.

I agree with the others about selling you a "dream". You can make money in short sales but it is not realistic to think you can retire on one or two sales. It is a volume game.

Whatever net proceeds you'll get out a successful sale will go right back into the business for marketing and overhead and you need to realize this it takes a year or more for the average investor to be able to be successful enough to do this full-time.

I and others on this thread do short sale flipping successfully, but most of us have other strategies as well. I consult, buy and hold for cash flow, Ifix and flip, and coach.

For anyone starting out, be careful about how you go about it. Do not spend money on Guru's systems as they typically are unrealistic or are over-simplified. Instead partner with a local investor actively doing short sales and learn first hand.

Your off to a good start by attending your local real estate club. Continue to network and look for potential partners.