Real Estate Information and Education
Archive for January, 2011
how to do short sales and prescreen your leads
413 days
How to do short sales and pre-screen your leads is simple but rather confusing in the beginning. – I often get asked, “when do I know when a short sale is worth pursuing?” This is a really good question and if you don’t know you have a huge potential of wasting a ton of time focusing on the wrong deals. You can make money on just about any short sale, but some may be as little a 1k, while the investment opportunities you are really looking for can bring a profit in the tens of thousands and possibly hundreds of thousands of dollars. So let’s break this down so you know what you are looking for in your short sale deals.
First lets discuss the function of a short sale from our perspective. When we find a short sale deal you will need to cash the seller out, meaning you need to come up with the money to buy. Therefore you need a substantial discount to justify the purchase. To determine the investment property value, typically you will follow this equation to ensure you get a good deal, ARV x .7 – Repairs = Max Offer. This will need to be adjusted depending on your end strategy and you current market.
In order to buy properties at these kind of discounts your offer needs to be justified, usually by the amount of repairs needed. The bottom line is we are looking for Junkers. The uglier the better. Now, there is one exception as we will discuss soon.
Now lets look at this from the lenders (short selling company) point of view. If you find a property that has an ARV of 150k and the property is owed 120k to 150k+ and needs no or little work. In order for you to buy you will need to purchase at 105k (150k x .7 – no repairs = 105k) or less. If the property is in good condition, worth 150k, needs no work, when and if the bank forecloses on the property they will be able to turn around and sell for 140k to 150k. They will pay commissions and closing costs which will cost them a max of 10% of the sales price. So, if they sell at 140k and they pay 14k is sales costs they will net 126k, possibly more if they sell for more. Accepting your offer of 105k simply doesn’t make business sense. And in most cases they won’t. This means they will take a 21k unjustified loss. There are rare exceptions where they will but not something you want gamble on. It’s better to pass on the unlikely deals and spend your time on the ones that will most likely work for you.
If this same property needs 20k in repairs we will need to buy at 85k or less (150k x .7 – 20k = 85k). 20k in repairs typically looks like 35k to 40k in repairs to the untrained investor. When the lender does their BPO or Appraisal it is very common for them to use the 35k to 40k number for repairs which plays in our favor. If they foreclose on the property they know they’ll need to discount the 35k to 40k plus an addition spread since investors will most likely be the only one offering to buy. It really comes down to this question for the bank, “whether we sell before or after the auction who are we selling to”. If the property is in good condition it will be an owner occupied buyer. If its a Junker it will be an investor requiring a substantial discount above the cost of repairs. If they know the property needs to be sold to an investor they would rather take the discount today rather than holding off and foreclosing.
When coming across a short sale in good condition, don’t throw it away. There is money to be made, not a lot, bet at least some. You’ll want to find a successful short sale Realtor and make an arraignment with them. You will want to sell them your good conditioned short sale leads. The arraignment I have is I get paid 30% of their commissions when they sell to an owner occupied buyer. I can get paid this way since I am a Realtor myself. If you’re not licensed you will need to be careful with this. You can’t legally get paid a commission or paid contingent upon a commission unless you’re licensed. If you aren’t, you can get paid for providing leads. This mean you get paid whether the Realtor closes a deal or not. You will probably get paid less per deal, but at least you get paid for all the referrals.
Short sale marketing – Find the best leads first
413 days
How to find the best short sales on the market! - Short Sale Marketing can be simple if you know what and where to go, and there are several ways to find short sale opportunities in the market place.
The most common Short Sale Marketing list is the public default list, which comes with the most competition. This is usually the “Notice of Defaults” or the “Lis Pendens” recorded on the title of the property. These are homeowners at least 3 months behind and their lender has taken formal action against them. The big problem with finding short sales this way is simply the competition from other investors, Realtors, Loan Modification Specialists, Bankruptcy Attorneys, etc. The bottom line is there are a lot of options offered to homeowners during this time and it’s hard to compete.
The next way is through a pre-default list which is typically called the 30-60-90 day lates. These are homeowners where they are 1 through 3 months behind and usually before their lender has taken action against them. Yes they are behind, but not showing on pubic record. Therefore much less competition. The issues with lease leads are they are harder to find, cost any where from $.70 to $1.40 per name. That’s for the name, not the mailing too. These sellers are also early in the process of foreclosure which doesn’t create much urgency. You will get leads, but do realize, a high percentage of these owners will wait before making the decision to sell in hopes they can do a loan modification with their lender or hit the lottery. It’s just too early and they have too much time.
The final way to find short sale opportunities is through the US Bankruptcy Court. This is my favorite,by far, and here is why! These owners are usually 6 to 18 months behind in payments which makes it nearly impossible to catch up. They didn’t just file bankruptcy because it was their first choice. It’s very common they’d explored a loan modification or other work out plan with their lender. They usually filed bankruptcy as a last option in hopes that they could save their home or surrender it to avoid foreclosure. Also, you won’t find much competition because this is a list that needs to be created, and can’t be purchased. It’s also extremely rare that your competition learns how to generate this list as there are not many resources that teach this.Therefore you don’t get dozens of professionals buying the list and marketing to the same list you do. It’s not hard to get this list when you know what you’re doing and where to go. It doesn’t even take much time.
There are two situations you will find if you market to the right list. The first is someone who filed a chapter 13 bankruptcy in hopes to save their home. Without getting in to the fine details, 85% of the time a homeowner attempts this they fail. Or the owner files a chapter 7 bankruptcy and attempts to surrender their property. Even when an owner does this, in order for the bank to get title they are required to foreclose. So regardless whether an owner attempts a chapter 7 or a 13, in most cases, the result will be their lender asking the courts for permission to foreclose. They do this by filing a “Motion for Relief from Stay”, which in most cases in granted though the courts issuing a “Order Granting the Relief from Stay”. There is a way to extract these leads at the exactly moment when the ‘Motion” is filed or the “Order” is granted. So you can time exactly when to market to these desperate owners.
At this time owner will have either filed BK before the public notice of foreclosure was given or many many months after. If it was before we have the chance to beat our competition. If it was after it was so long ago that our competition has stop and they owner doesn’t even know who they are any more. This is the position you want to be in.
So there you go, my argument why Bankruptcy Leads are your best Short Sale Leads.
Again, there is a way to get these lead at the exact right time. I can show you how, just click here!