Will banks take a loss on a short sale?

Question

I just found a 1BR 1BA 650 SF Condo in my area that is a short sale for $100k. Did some digging and 2BR 1BA 850 SF units in the same place are selling for around $120-140k in the past year. HOA fees are $350 a month and include heat. Taxes are $1100 a year.

I found it on Zillow and it said accepting offers until March 1st. Still no offers.

I looked up the owner and he died in 2018 so I am assuming that the family didn’t make payments any longer or something like that. The post did say that the seller may be responsible for back taxes and HOA fees. I also looked up his mortgage and it looks like he took it out for $95k in 2007. Don’t know the terms or down payment or anything but safely assuming $70k left on it if he didn’t refinance.

My question is:

I have cash and am crunching the numbers to see if it’s worth it but if he owes $70k and they have it listed for $100k, what are the chances I can come in with a $65-70k cash offer contingent on them paying HOA back fees and inspection/contractor walk through?

This would be my first property I h e ever bought and not sure what to do. Do I write up an offer based on a template? I don’t know if I want to BRRRR or flip yet but I do want some advice from others that have experience in this area.

Rents are $1000-1200 but it’s an up an coming area and my friend who is a PM says he lists a rental and has 60-100 inquiries on the first day.

Any help is appreciated.

Zachary Beach · Answer

@Jamie Nason The trick is how to get the max value increase per cost. Where most people struggle with brrrr and flipping is they don’t understand style and quality and how to negotiate. Retail cost to Reno is about twice what an good investor with relationships with less expensive high quality supplies and good contractors can get. Think of grocery stores they sell stuff at the “price” but normally they buy it at half that price by being easier to work with and bringing more business. There are dozens of parts to a deal and the profit of the deal is the ￼ combination of how much under retail you can get everything + or - appreciation. That includes supplies labor furniture management, if you are selling how much can you negotiate down realtor fees, if refi can you negotiate off points and fees. How much more you can get the ARV to be by doing a great job if you hold how much you can supper charge rents in my case I do STR’s so Our properties our top properties doing 3X+ the 50th percentile. The more edges or ways you add value or understand value that you have that others lack the better you do.

Lynnette E. · Answer

The deals that you can get from bank owned properties that are 50% or more off their 'fixed' values is because these properties require major work, not $15k, but more like $60k and up, often more than the property initially costs.

Example:  I bought a 4 unit apartment building and small storage unit building for less than half its value.  It was a foreclosure.  The druggies who lived there in the past scared the landlord who never collected rent, thus the foreclosure, no income, no payment money.  The druggie tenants did readily recycle EVERYTHING they could.  Wire removed from the units, light fixtures, plumbing pipes, appliances, water heater.  The place smelled like smoke and had a sticky nicotine touch to the walls and ceilings.  The floors were carpeted and full of pet feces which had soaked down into the plywood under the carpet; the feces was walked into the carpet.  Did I mention that breathing in the units was not possible?  They did leave the HVAC ductwork, not sure why, but I had to remove it because it was sooo coated with tar/nicotine that it was not cleanable.  2 companies tried.  The roof actively leaked and needed total replacement.  The blacktop parking lot needed another layer of blacktop--$21k cost!

Another example:  A Victorian house built in 1900 for $44k.  It is physically beautiful!  But the roof needed to be replaced at a cost of $18k, replacing Victorian roofs are expensive!  It takes a special shingle because of the steep sloop of the roof, and skill because of the shape of the roof, oh, and this house never had a roof base, the plywood looking stuff.  The shingles were nailed on 3 inch wide boards!  That took effort to remove the layers of roofing!  The main support beam holding the house was split, so to fix it 2 stories of house were held up by jacks as that 12 inch by 12 inch beam was sistered.  Part of the floor was rotten so the floor was removed in the living room and dining room and the joists replaced.  Then the hardwood was replaced on the floor, about 2/3 of the original hardwood was usable!  The kitchen had walls that were wonky, not flat.  So in trying to fix them, we took off some layers of cardboard walls and found out that back in maybe the 1950's by the newspapers in the wall that there had been in a fire and the walls were burned.  So, walls, floor (rotten too) everything in the kitchen was redone.  That house is beautiful, amazingly so now, with  new hickory cabinets and a huge kitchen.  There was never heat or air in the house.  Victorians do not do well with ductwork, so I put in 2 minisplits and one regular HVAC system to heat and cool all the house.  Oh, and the usual stuff too like paint and general clean up.  A lot of work and money went into that house.  It truly is beautiful now!  Renting it was very easy!   (And that is with some walls painted paneling!  Nope, I do NOT want to see what is under the paneling!)

I can give lots of examples, because these types of properties are what I buy.  But never once have I bought a property that did not have major issues that most people would never deal with.  And I always get them at very low prices.  But I put a lot of money into then.

So, when you hear of the very low priced houses, realize that they often are very distressed properties and it takes a lot of money and work for them to be livable.  Also these properties will not qualify for regular loans.

Jamie Nason · Answer

@Lynnette E. Thank you! Both your posts make sense.

Most don’t buy 50% off but they find something maybe 20% below market value that needs work and build in that extra 15-20% equity with repairs.

Lynnette E. · Answer

This post is about the numbers for buying.

If the previous owner died 3 years ago, then the interest on the loan and late fees continued for those 3 years.  The amount that was owed is very likely more than the original loan.

Vocabulary--if the ML states that it is a short sale, by definition that means that the bank is NOT getting all that is owed to them.

Banks definitely lose money on short sales, that is what it is about, by its name.  Often this loss is federally insured so in that case they file and get the lost money.  However, the bank will not purposely leave money on the table.  They want something that will close with the least amount of loss.  Banks are not going to cut you an investor break.  These types of sales are harder for investors because people who want to live in the house can pay higher.  UNLESS the property is highly distressed.

Whenever dealing with bank owner property, ALWAYS REMEMBER, the banks want to sell the property.  That is all.  They will NOT fix a broken window if they do not have to.  They will do the minimal amount of work, and that is mainly only to secure the property.  They won't pay HOA fees, trash, sewer or water bills and sometimes taxes if they can avoid it at all.  So an offer asking the bank to do anything will be the first ones rejected.  Banks like properties to easily close, no inspection, no repairs, no pay fors, preferably cash.

It would be better to state that the property is worth XX, the HOA fees at estimated time of settlement is X, taxes at estimated time of settlement is XX, so market value - taxes - repairs - HOA fees = $XX for the offer.

Bill B. · Answer

I don’t think “anyone” is getting properties for half of what they’re worth. (Quotes around anyone means, yes I understand 1% of investors work harder than the rest of us and get some great off market deals.) BUT, 99% of the deals occurs between 80 and 100% of current value.

You find a place that’s worth $200k fixed up that needs $50k worth of work. That doesn’t mean it’s worth $150k today, because most people won’t subtract just the cost to fix something. You need to remove $’s for the time and the hassle. And for the unknown problems you might find along the way.

I’m not going to pay $150k so I can spend $50k over the next couple months to have a place worth $200k. The same reason the seller isn’t going to fix it up and then sell, they didn’t make any extra for that work/risk/time. So maybe you pay $120k. Then you do a little work yourself and you have a good relationship with some painters/flooring/roofing guys and you get the work done for $35k. So you have $155k in to a property worth $w00k. You take out 75% if it’s a pure rental and you have $5k in to the deal. Or 80% if it’s a fourplex you’re house hacking and you have negative $5k in the deal.

If you can find properties for half off. Just list them on the mls without touching them. Double your money and repeat.

Jamie Nason · Answer

@Bill Brandt so how do all these BRRRs work on here where people get houses for almost 50% off then renovate to 70% ARW? This place needs some work. Maybe $15k to have a good renter. Even at $100k purchase price it wouldn’t turn a profit renting it.

This is why I have a hard time seeing all these successful BRRRR stories where people are finding houses 50-60% below market value because I see so many people saying that the banks won’t let them go for more than 15-20% below market value.

Bill B. · Answer

If it’s a short sale and they are asking $100k, the bank is owed more than $100k. If it’s worth $120k to $140k I assume someone who wants to live there will think $100k is a steal.

There’s no harm in putting in an offer if it’s on the MLS find a realtor, that won’t cost you anything. If it’s not it probably on something like auction.com. Go there and place a bid. You never know.

William Hochstedler · Answer

If it's actually available, it will be listed on your regional MLS.  Probably https://www.mainelistings.com/

Banks require broad marketing and having it listed by a Realtor.  If it's listed on the MLS, you should find a local real estate agent to help you make an offer.

There's lots of info here on how to find a good agent.

Welcome to BP!

Will banks take a loss on a short sale?

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