Arms Length with Short Sales
Some Investors focus on purchasing short sale properties as fix and flips for the quick profits on the back end of the deal. Other Investors buy short sale properties to keep as rentals for long-term positive cash flow. At Pink, we invest in both! In addition to this, we have established a rent-to-own program as well and as a result, we have seen double the benefits working closely with our short sale sellers!
When we work with short sale sellers, we benefit them by helping them avoid the consequences of foreclosure by either offering to buy their house directly or listing their home as a short sale. If we want to buy the house, we decide if the purchase is to fix and flip the property or if the property will become a rental or/or part of our rent-to-own inventory of homes.
While the short sale process takes time, it is the perfect time to understand the seller’s hardship and what is needed to get them back on their feet. Getting to know our sellers helps us learn if they fit the profile for our rent-to-own program. If they do, we tell them about it! If they are interested, we give them the details, work with them on to know what home fits the best for them and suggest they begin saving for their down payment right away.
While all investors must adhere to the short sale Arm’s Length transaction law where neither the distressed lender nor seller can be taken advantage of by investment buyers on a short sale, you can still take advantage of the rent-to-own concept. While there can’t be any relationship between buying and selling parties to ensure there are no agreements that allow the seller to purchase or rent back their own property after the sale, you can certainly rent them a different property or allow them a lease/purchase option on a different property.
After working with so many homeowners to sell their homes as a short sale to avoid foreclosure, we realize many of these people just had a bad break and need a second chance. Many of the financial hardships homeowners are face with are temporary, not permanent. It could have been caused by a job loss or temporary unemployment, a divorce, or the illness or death of a family member. Real people face real hardships every day, but it does not mean their financial hardship is forever.
When we see the seller’s hardship is temporary, but it is inevitable they must sell their home to avoid foreclosure, we offer them the opportunity to own another home in the near future with our rent-to-own program. Losing your home is a very stressful event. Wondering where you will live once you lose your home adds to the stress. Many homeowners are grateful when we can offer them a place to go with the option to own the home in the future.
By the time the short sale is complete, many homeowners have been able to acquire the down payment needed to move in. Once they move in, they pay a designated rent amount with a percentage of it going toward the total down payment they will need to purchase the home. We also put them in contact with a reputable mortgage broker who determines exactly what is needed to re-establish their credit so they can qualify for a mortgage loan in two to three years.
When we offer a home in our rent-to-own program, the purchase price of the home is set if the seller can finalize the purchase in one year. If a short sale seller rents one of our homes in our rent-to-own program, but they will not qualify to purchase the home for two to three years, the purchase price is determined differently because the market can change dramatically in the two to three year period.
We get great satisfaction being able to help the homeowners avoid foreclosure by either buying their property as a short sale investment or successfully selling their home as a short sale. We are able to reduce some of the stress of their situation by providing them a place to live when their short sale is final and they have to move. We get them in touch with the right people who can provide them the means to re-establish their credit so they qualify for a mortgage loan again in a few years. If we purchase the property as a fix and flip property, we see the profits from the sale after it is fixed and re-sold. If we inventory the property as a rental or a rent-to-own property, we benefit from the upfront deposit, the steady positive cash flow, and the profits at the end of the term when they are able to purchase the property.
Everyone wins! Everyone benefits! And your sellers are so grateful, the leads just stream in.
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