Short Sale Flips and Transactional Funding

[Vito P.]

Hi All,

I am new to this forum and somewhat new to investing in distressed properties, although not new to real estate investing in general. I am a builder and developer, so I have bought, developed, built, and sold quite a few properties over the last 12 years.

I am interested in learning about flipping short sales using transactional funding. I think I have a pretty decent understanding of the process and believe I have the skills to be successful at it. I have negotiated two short sales in the past, and was able to get both approved. This was not done for a profit, but rather just to help someone who had to short sell their property and their realtor was not getting it done for them.

I am very intrigued by short sale flips because I believe, at least in theory, they present a good opportunity that should only get better in the forseeable future.

Enough about me - I have a few questions:

1. I have not met anyone who is flipping short sales and in fact when the topic was discussed last month at our local REI meeting, it was almost taboo and was strongly discouraged because of potential fraud issues. From what I have read, full disclsosure will avoid this (I intend to seek advice from my attorney on this). So my question is how many people are successfully finding and flipping short sales to a retail buyer using transactional funding on a regular basis? How many deals of this nature are are the full time investors completing per month?

2. What are the average spreads that are able to be obtained, either on a dollar or percentage basis. Is it enough to justify the additional work that is involved as opposed to dealing in properties that have equity.

3. What are the best types of properties to target - properties that are at, below, or above the average market price. I would think higher priced properties may generate more of a spread, but would also be harder to sell.

4. What are the best strategies for marketing for end buyers and at what point do you start marketing in relation to when you have the property under agreement? I understand that you should always be marketing for buyers, but when do you start marketing the specific property - as soon as you put it under agreement or after the short sale is approved?

I have a bunch more questions, but I'll save those for another post. I look forward to hearing from as many of you as possible.

Thank you.

[Eric M.]

Vito,

You are on the right track with your questions and your line of thinking. I am a transactional lender not a flipper so I don't have all your answers though.
People who fear the fraud issue are simply uneducated but you will run into alot of them so just keep plugging til you find people comfortable with the flip process. It is the B investor (you) who is the most likely to defraud in a flip and you have control over that so no worries. As you say, proper disclosure makes everything clean and legal.
Of course you know how long SS can take so how many you can do is simply limited by your time and ability to keep filling the pipeline. Working by yourself I think it would be hard to average more than a few per month but some do. Most do not.
Spreads vary alot. I have some people how are realtor/flippers who do them for very slim spreads because they get the realtor commission too and they want to do volume. Others demand more %. Maybe 10-20% gross spread on average. Over 20% can put you in an area where there is increased scrutiny by the C buyer's lender and that can be a hassle.
As you said, you will always be marketing for end buyers. I think it is important to have a realtor on your team who is completely comfortable and knowledgeable about back to back closings and let them work the marketing end. It does take alot of hand holding and education of the C buyer, C Realtor, and C lender sometimes.

Good Luck