There are many opportunities for Real Estate Investors today and it seems like the latest buzz word is SHORT SALE.
There are a several very good reasons for this.
1) They are in abundance: Just about every street in Hemet and the rest of Southern California either has had a short sale, has a short sale in progress or will have one in the next year. Not only are they abundant today, but the well is deep; and
2) They are a very lucrative market where the investor can literally create a handsome amount of equity out of thin air for about 20 to 30 hours of work spread out over a month or two; and
3) It doesn't take a brain surgeon or rocket scientist to figure these out. This means they are relatively easy to facilitate, as long as you can keep yourself organized and be faithful to a timeline; and
4) If done properly, these really are one of the easiest ways of controlling property and profiting from it without any money out of your pocket. I know, you've watched the late night infomercials and bought programs before, but I'm talking about legitimate opportunities that are all around you and really can be structured with no money out of your pocket.
Short Sales Are Not a Piece of Cake or a Walk in the Park
Just because Short Sales are abundant and easy enough to learn with minimal risk does not mean they are for everyone or that short sales don't fall apart at the last moment.
Let's examine the most common areas of a Short Sale deal falling apart.
1) NOD - The only time a short sale will take place is when the homeowner is in default and has started the foreclosure process. Prior to the NOD being filed, the lender is still optimistic that the loan relationship can be salvaged. Without a Notice of Default, there will not be a short sale.
2) Need or Hardship: The homeowner must be able to document a legitimate hardship. The lender will not grant a short sale just because the borrower is upside down and wants out. They must be able to prove that they cannot afford the home, under any circumstances. The homeowner needs to be cautious, because if they stretched the truth in obtaining their loan and now provide conflicting information from what is on the loan application the borrower may be providing the necessary documentation and evidence to convict them of mortgage fraud.
3) Junior Loans: There are typically a second or even a third loan that must be negotiated along with the first. There may also be tax liens and other encumbrances against the property that must be negotiated.
4) BPO: The BPO or Broker Price Opinion is similar to an appraisal, conducted by a local REALTOR. The lender will use one, two or three of these to determine the actual current value of the property. It is always best as the buyer to be present to help influence the BPO. If the BPO comes in too high, you will never get your deal through.
5) Lenders Approval: The Short Sale is 100% dependent on the lender buying off on your short sale package and offer. What you present has to make sense. Remember, you are trying to convince them that your offer is better business than taking the home back and selling it as an REO property.
6) Repairs: One of the most critical aspects of buying any investment property is determining what the cost of the repairs will be. If the home is totally thrashed, that is OK as long as you take into consideration the actual cost to rehab the property. This doe not mean that you are going to rehab it, but whoever does cannot turn up and hidden problems. Spend the time and know the property before you lock yourself in.
7) Tax Consequences: There will be times when a homeowner balks at a short sale offer when they consider the tax consequences that they may have to endure. Current law calls for the mortgage lender to send the IRS a 1099 for the debt that has been written off - reporting it as taxable income. This single reason scares more homeowners into delaying; thinking they can find another way out - only to have the foreclosure precede and they still end up with the tax bite.
All of the above obstacles can be overcome, if they are raised. Knowing what they are ahead of time and determining how you will handle each ahead of time is an excellent strategy to move foreword and close multiple preforeclosure short sale deals each and every month.
Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,
John Occhi, Hemet CA REALTOR