Targeting Short Sales For Note Deals
51:23 · 2019
This episode is going to have a lot of impact on a lot of real estate investors out there if they take to heart what I end up discussing. Our topic is about short papering short sales. A lot of people are like, “Short sales, that’s an ugly two-word phrase. There’s nothing about short sales. How am I going to invest in a short sale?” As note investors, one of the great things is you have to realize that we’re buying distressed debt and distressed debt comes into play when we’re dealing with short sales. Short sales are a borrower who is upside down in their property. They are usually behind and they negotiated with the bank to allow them to sell the property or to list the property with an agent and try to get it sold for cash at an amount below the total payoff. The only person taking a short in this is the borrower. The borrower is owed something, but the lender has to approve the reduced pay off from them.
What’s great about this is we cut our teeth on short sales years ago. Back in 2007 to 2010, we’re doing short sales in a variety of different states across the country. It’s a different ballgame on what it is now compared to what it was a decade ago. From talking with agents specifically, it’s starting to see an increasing amount of realtors dealing with short sales or short sale agents that are starting to specialize in that aspect. One of the great things that you have to realize is there are some bonuses to looking at short sales right off the bat versus dealing strictly with the bank’s list. When we get a listing from the bank, you don’t know initially if it’s occupied. It might say it is, but you have still got to double check it. You don’t know which way the borrower is going to go. Do they want to strive to stay in the house? You can tell some of the stuff by the pride of ownership when you’re driving by or if they’ve tried to make payments in the backend of the last several months if you can see the servicing notes.
If you see a property listed for a short sale, it’s like a home run in a couple of ways. It’s dependent on a couple of things. First and foremost, I don’t want you to run out to your local agent and say, “Send me all your short sale listings.” That’s not at all what we want you to do. That’s not going to be an effective use of your time or their time. This episode is about outlining a little bit of the things you can do to help specialize this. In a short sale listing, one thing comes immediately to point. The borrower is ready to get out of there. They’re ready to leave the house. They’re ready to walk away without getting any money in their pocket. That’s the thing about a short sale. A borrower walks with nothing. Oftentimes, you’ll have short sale deals where there’s a first and a second. Usually, the second can be negotiated down for 5% of what’s owed or less depending on what the house is worth in the market on the first. In some cases, market values have increased quite a bit so the first is fully paid off and the second is fully paid off. That’s something to keep in mind.
We’ve seen a lot of short sales in hot markets. We don’t see that much here in Austin, Texas but we are starting to see them pop up in other places like Houston, Dallas and some other areas where the market has started to go south and started to get soft. The beauty of it is the borrower ready to get out of the door. The second thing is it’s listed. It means you can go see what’s going on inside of the pr
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