Posted by Len on July 15, 2003 at 10:45:31:
Sorry Stacy…a failed attempt at humor. I was talking about making a short sale offer on the short sale bootcamp.
Cheers,
Len
So, what’s the “short sale” fad anyway? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on July 13, 2003 at 18:13:50:
I’ve been seeing so many questions about short sales lately.
In my view, it seems like a fad. People are jumping on the latest bandwagon. Any theories as to what is going on here? I see that there are several educators and gurus pushing this topic, including Ron LeGrand.
I wonder if some of the appeal is that people feel that beaurocrats can’t think clearly, so the bank people will be more sucker like than sellers? Is there some view that “let the big institution pick up the tab to make this a good deal?”
I’m sure that there are legitimate uses of the short sale, but most of the investors wanting to use it seems to be to be bogus. What’s wrong with this picture? The investor wants to convince the lender that the property is worth less than the loan against the property. The lender should allow the owner to sell at market value. Then how does the investor make money? Maybe because the property is worth more than the short-sale price? Then how could the investor in good conscience try to convince the lender that the property was worth less, the proposed selling price?
So, any deep thoughts on this?
Good Investing**************Ron Starr*************
Re: So, what’s the - Posted by Ron M
Posted by Ron M on July 15, 2003 at 01:22:40:
Ron,
It seems to me the short sale fad, in my area, has something to do with a great deal of overfinancing that occured in the past few years with 125% LTV loans being written by mortgage brokers and the dishonest acts of appraisers and real estate agents that went along with taking advantage of the home buyers. Many of these properties have already ended up in foreclosure, and others are on their way thanks to the relatively poor economy.
As an investor I am just looking for the best way to procure properties that apparently have no equity in them prior to them winding up on the courthouse steps and leaving the seller with a foreclosure on their credit report. Having read a few posts as well as the marketing materials written by the Pros who write the courses, it seems that the only way to deal with distressed properties with no equity is a short sale. They state that a short sale creates a win-win situation for the distressed seller and the investor. I am looking to create a $10K to $20K profit on houses that would retail for around $80K to $100K after repaired. Up till I heard about the short sale methodolgy I did not know of anyway that I could work with a distressed property that has no equity.
In your opinion, is there a better way? Thanks for your reply in advance.
Ron M (WA)
I kind of prefer the ol’ REO method - Posted by Shawn J. Dostie
Posted by Shawn J. Dostie on July 14, 2003 at 17:44:21:
I know it’s kind of boring, but I can sit and wait for a deal to develop. With a short sale, it seems that there are too many options for the bank. If they take it to the sale, even though the savvy investor told them that it was only worth x, not the x + 5 that they’re into the property for, they may get a guy at the sale to pay x + 6 for the property. Nobody says you have to be smart to buy at auction. I’ve seen it 1000’s of times where I walk away from a sale muttering to myself, What were they thinking??? If it doesn’t sell, they can try to sell it conventionally through a broker. AHHH, and if that doesn’t work, how about that ol Shawn down the street. He’ll buy anything. As long as the price is right… and the terms. So, just chase down those short sales, and I’ll just sit back on my heels and wait. In my opinion, in most cases, it’s the seconds that will short sale… and they were likely to get zippo if it went to sale. So how far ahead are you buying that. I’ll bet there are some cases, right along side of the other methods where it is extremely profitable. And if I see that I’ll jump on it like a kid on a lollipop. Just another tool for the toolbox.
Good Luck,
Shawn(OH)
Re: So, what’s the - Posted by eric-fl
Posted by eric-fl on July 14, 2003 at 12:08:04:
I agree. While there are some excellent points on how it can work in the posts below, in my admittedly limited experience with banks, I have found them to be inflexible. Also, chasing REO deals is difficult because lots of newbies bid them up.
Again, I admit my experience in this is limited, as I wrote off short sale/REO/whatever they’re calling it nowadays many years ago. Even the advocates of this technique admit that it takes a lot of legwork to get a deal this way. Personally, I’d rather spend my time marketing directly to distressed owners to find deals, rather than dealing with inflexible institutions with no stake.
The real FAD is liberal lending habits - Posted by JT-IN
Posted by JT-IN on July 13, 2003 at 19:17:11:
Lenders have dumbed down the criteria in which to make mortgage loans, so that they could continually stay fully invested. When market values of defaulted loans do not equal that of the loan balance, guess who is going to bend on that one… either now, or eventually.
I for one do not understand the math on the equation of how these looser guidelines and higher default ratios work out on the bottom line for lenders… How does this help their profitability…? The answer probably is… It doesn’t. But that is a whole conversation for another post, no doubt.
Anyway, I have absolutely NO PROBLEM asking some of these lenders to come down to earth on the numbers… It is not a FAD, but a tried and true method to help erase the error that the Lender made when underwriting the loan. Afterall, if they hadn’t made these marginal loans to begin with, they wouldn’t be receiving a phone call from a saavy investor who is trying to make a buck, and solve a problem for them and the property owner at the same time. No Mercy on them… (the Lender)
Just the way that I view things…
JT-IN
PS. What I leave out of the intention of this post are the many folks who seem to think that just because they want the Lender to discount, means they should/will. In these cases there seem to be little regard for a correlation between the amount owed, as compared to the FMV of the property. All too often I read about someone who has a house in great condition with a FMV of 150K, (arbitrary value), and a mtg balance of 120K, who is attempting to achive a short sale of 75K… Duh, this doesn’t wash, and it tends to hurt the credibility of others doing short sales, when a short sale may be more warranted… NOw these type of requests for a short sale is a Fad that is going NO where…
So, what’s the “short sale” fad anyway? - Posted by Bill H
Posted by Bill H on July 13, 2003 at 19:15:02:
Ron:
I agree with both you and Bill Bronchick. We seem to be a nations of followers and fads…It almost seems like we are always saying, “Hey! The boat’s leaving and I’m not on it.” Yes, the shortsale hype is out of hand at the present in my opinion also.
I also agree with Bill Bronchick and to paraphrase Judge Learned Hand in his writing about taxation, “There is nothing patriotic about paying more than your fair share.” Bill’s analogy of the car dealer is perfect…try the auto industry sometime…been there done that…more funny stories and “negotiating lines” than a zebra has stripes…ain’t none of them straight!
Good luck and thanks for a thought provoking post.
Bill B
Well… - Posted by William Bronchick
Posted by William Bronchick on July 13, 2003 at 18:36:56:
So, you are saying that to suggest to another that something they are selling isn’t worth what you think it’s worth is illegal, unethical or immoral? That’s called “negotiating.”
You pretend to the car dealer you aren’t interested in the car so he drops the price.
You suggest to your tenant that there’s lots of tenants interesed in your unit to scare him into a decision now.
You tell your girlfriend that there’s lot of women hitting on you so as to make yourself appear desireable.
Are you saying this is all somehow WRONG?
And by the way, I agree that the short sale thing is over-hyped, but for a different reason - it isn’t that involved. I tell people doing a short sale is like trying to get your phone bill corrected - you spend hours on end trying to get a human being on the phone who can help you. Once you get to the decision-maker, then the negotiating is rather simple: either they take the discount you want or they don’t. I’m not sure how this makes a 5 day boot camp, but I guess you can spend a lot of time learning how to couch your offer and anticipate objections. Then again, this type of negotiating can be learned at any negotiating seminar.
As far as “pulling the wool over their eyes,” don’t count on it - the lender sends someone to drive by the property as soon as the borrower defaults. And, they usually hire local real estate companies to get a market analysis. So, in most cases the short sale doesn’t involving a “sucker,” but rather you being the first persistent SOB to get through to the decision maker.
My first law office was shared with a personal injury lawyer who gave me free rent in exchane for settling a few cases. All I did was bang the phones all day long trying to get an insurance adjuster on the phone who would actually make a decision. This took dozens of phone calls on each case and twisting the arm of someone who had no personal stake and couldn’t care less. Every once in a while I’d catch someone in the mood to clear out his desk of a few open files.
Negotiating short sales is the same thing - it takes persistence, patience and practice, not a 5 day boot camp.
Re: So, what’s the “short sale” - Posted by Rob FL
Posted by Rob FL on July 13, 2003 at 18:36:49:
These lenders who permit short sales aren’t stupid (at least when it comes to procedure). They require a good amount of paperwork from the borrower. They also have a BPO or appraisal done on the property to make sure of the value and condition.
Pretty much what makes or breaks a short sale is the BPO/appraisal. If the BPO comes in high, then the lender will tell you to take a hike.
Personally I tend to avoid short sales. They are often time consuming (usually take twice as much time as a normal deal) and there is about a 40% chance that the lender won’t take the deal. There are too many real deals out there to specialize in short sales. My opinion anyway.
My Situation - Posted by Brian(md)
Posted by Brian(md) on July 13, 2003 at 18:30:13:
Here’s the situation I’m in.
Seller and Partner Want to buy a rehab project, fix it up and sell it. Problem #1: they have no clue what they where doing back in Aug of 2001. Paid too too much (65k) and proceeded to try to fix it up themselves.
Later, the money runs out. Right after they get through ripping all the old stuff out of the house.
Then, there is a fallout between partners. They stop talking. Now no work has been done in about a year. House is boarded up and not in good shape.
Comps NOW, two years later? 120-130k. ARV (would be on the high end if I installed forced heat and A/C)
Costs of repairs to do all the work including ripping out the old boiler heat system and installing the new duct work? 30-35k.
The situation as it stands? Erring to the side of safety? ARV 130k, Repairs 35k, Wholesale Profie (I’m not doing the rehab myself - 5% ARV) 7.8k, and a error factor of 3% ARV.
I can offer 37.8 max. But I am going to contract lower hoping they will counter.
Seller owes over 61K. DEFFINATLEY not worth that anymore. I can send Digital Pix if you want proof.
The bank could get more if they sold it at auction to a rehabber himself (cut out my comission), and if the rehabber was going to cut costs and not install forced heat or A/C and settle for the $120 side of the comps.
But they arn’t going to get a lot more.
What do you think?
Re: So, what - Posted by GL - ON
Posted by GL - ON on July 13, 2003 at 18:24:03:
My reaction is, first no bank I ever saw will sell a mortgage at a discount for any reason. They would rather ride it into the ground. Second, banks routinely package their loans and sell them to Fannie Mae or some other agency. After that I don’t see how they could exercise any control if they wanted to.
Let me stress this is pure uninformed speculation on my part. I am waiting to be corrected.
By the way Ron, 50 lashes with a licorice whip for using a title that triggers the “Subject exceeds 50 characters” annoyance. You should know better.
Re: So, what’s the - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on July 15, 2003 at 12:37:31:
Ron M–(WA)------------
I don’t know of a way to work with properties in foreclosure that have no equity. So, you want the bank to agree to take a payoff of about $10K to $20K less than the property is worth. Well, if they do that, you can probably make a profit. If they won’t you just say “next” and go on to the next potential deal, it seems to me.
Good InvestingRon Starr*******
Re: The real FAD is liberal lending habits - Posted by Mich_Mike
Posted by Mich_Mike on July 14, 2003 at 05:01:12:
JT-IN,
I agree 100% with your post. Also consider the following:
- Foreclosures are at there highest levels since they began being tracked (32 yrs I believe)
- Lending standards are laughable compared to previous generations
- FHA has for the first time given instructions to lenders on how to handle defaulted mortgages (and short sales is one of the 4 choices listed)
- Almost anyone who gets in financial hot water can take out a 2nd for interest rates that are 5+% above prime
- The federal gov’t is encouraging low interest rate lending to entice the consumer to go even more in debt!
- Freddie Mac is facing corporate wrong doings and re-statements of profits
These are just some of the reasons that short sales are a “fad” right now. Sure, once the lenders are so scared to make a marginal loan that only A and B type people will qualify, the trend will change. Of course, that will be the pendulum swinging the other direction. Might as well take the opportunity to make some $$$. You need to adjust and adapt to the changing economic environment.
My .02
Mike
Re: So, what’s the - Posted by Ben (NJ)
Posted by Ben (NJ) on July 13, 2003 at 21:26:22:
“We seem to be a nation of followers and fads”- that is why every commercial now is for some BEYOND STUPID reality show like “the Restaurant” or “Queer eye for the straight guy”. I can’t wait for reality TV to go the way of the backward baseball cap.
Re: Bingo - Posted by Stacy (AZ)
Posted by Stacy (AZ) on July 14, 2003 at 14:36:15:
Right on the money, Bill. A five day boot camp for short sales? Give me a break!
Re: So, what’s the “short sale” - Posted by RichV(FL)
Posted by RichV(FL) on July 14, 2003 at 05:23:18:
Rob,
I feel the way you do on short sales. They sure are time consuming. Hey but if someone has the time and think they can strike a deal with the lender I would say go for it.
Regards,
RichV(FL)
Re: My Situation - Posted by Tom-FL
Posted by Tom-FL on July 13, 2003 at 22:32:15:
130k (ARV) * 70% = 91k
91k - 35k (repairs)=56k
56k - 8k (your profit) = 48k
You buy at 48, sell to rehabber for 56. There is about 13k missing. If you are willing to rehab yourself, I suppose you could buy at 56, leaving a 5k shortfall. Maybe you could find a way to cut out 5k from the repairs.
Re: My Situation - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on July 13, 2003 at 21:07:23:
Brian–(MD)------------
Nice to talk to you. But, you probably aren’t going to like what I say.
This is an object lesson to beginners. What has happened to this pair happens with a lot of careless folk who look to get rich quick with real estate.
The problem is, sellers rarely can sell for less than their loan amount. Sometimes a little less, like three to five thousand dollars or so. But rarely the amount you are talking about.
Now, I don’t understand your figures anyway.
The property will be worth $130K fixed up. It will take about $35K to fix it up. That gets us down to $95K. Say the rehabber wants $20K profit. Fine, that gets us down to $75K. So, if you can buy it for $65K from the owners, they make roughtly $4K. That might appeal to them. And you make $10K from the rehabber to whom you flip it.
To me, that seems to work.
If the rehabber wants $25K profit you buy for $63K, and resell for $70K, making $7K for your trouble. Sounds ok to me.
Good Investing*Ron Starr
Donald Trump’s “The Apprentice” - Posted by Mike G
Posted by Mike G on July 15, 2003 at 16:32:43:
FYI…there’s an interesting reality show in the works right now that may change your mind. 16 young professionals (8 Ivy League types and 8 street smart entrepreneurs w/ little/no formal eductation) do business projects in New York City (i.e. convince a store owner to operate his shop for the day and increase its profitability, things like this). Hosted by Donald Trump. Each week the least savvy business person gets voted off (or fired) by Donald. The winner receives a 1-yr $200k employment contract w/ the Donald Trump Organization.
Beats what’s out there now. I’m looking forward to it.
Re: So, what’s the - Posted by RichV(FL)
Posted by RichV(FL) on July 14, 2003 at 05:17:33:
Ben,
I’m with you. I think one would have to have an IQ of about 3 to enjoy those stupid shows.
Regards,
RichV(FL)