Short Sale Doesn’t Mean Short Profits

Thursday, February 11th, 2010 | Uncategorized

These days you hear more and more talk about home foreclosures and the housing crisis. In turn, you’re hearing more about pre-foreclosures and short sales, which is great news for residential real estate investors. You are in the perfect position to help these struggling homeowners, people who are looking for a way out of an often desperate financial situation. As an expert in short sales, you can provide that way out.

Short Sale, Defined
But first, what exactly is a short sale, anyway? It’s the sale of a property for an amount below the existing debt on the property. The purchase price is not high enough to cover the existing debt. It falls ‘short’ of paying off the full balance of the property. A short sale is generally preferred to outright foreclosure, in that it helps a bank to get rid of a property. Banks are not in the business of real estate, so they don’t want to own a property if it can be avoided. Short sales do not happen quickly, as the name might imply. A short sale can take many months to complete, and is racked with details that have to be tended to in order for the deal to succeed.

So now that we know what a short sale is, we have to ask what role the informed real estate investor plays. How can an investor make money through a short sale? Are there any secrets of how to succeed in short sales? Absolutely. Real estate investing has long been an attractive area for someone looking to make a profit. There is a low barrier to entry, after all. However, there are barriers that make it more difficult to really be good at it, including finding leads, fixing up the houses and having sound exit strategies. This is where you come in, as a smart, informed investor.

Knowing What To Know
There are many steps in the short sale process, and each requires its own skill set, with time to learn so you can adjust when things don’t go as planned. The power of real estate short sales is that they give you enough control to work the variables and build the business you want. If you understand the short sale process and the steps involved, you’ll know how you can best help a homeowner, present an offer to the lender that has the best chance of being accepted, and plan what the best exit strategy will be for a given situation. Your exit strategy – whether a rehabber, lease option buyer, landlord or retail buyer – will impact your approach, and your profit margin. You make money on the spread, so be sure you’re looking for the right buyer while negotiating with the bank.

Can you make a profit with pre-foreclosure short sales? You bet you can. But, you have to be realistic in your expectations. It is critical to fill your pipeline and keep it flowing with deals. It’s a mistake to fill the pipeline, then sit back and work those deals, only to have to start your marketing strategy over when you’re ready to start new deals. Be sure you’re working on multiple deals at once.

Having a strong referral base is the best way to make sure your business is operating at an optimal level. It is a way to expand your network and client pool. Using your center of influence to drive your focus will result in stronger investment deals, because the information is coming from a known source.

Next, don’t expect banks to be efficient or logical – they’re just not. Sometimes things will happen that make you shake your head. So make sure each and every detail is attended to:

Understand the property and the homeowners situation.
Gather the completed paperwork and make sure it gets to the lenders.
Make sure the offer is assigned to a LM.
Ensure that an interior BPO is done.
Find out what the BPO is.
Find your buyer.
Determine your ideal exit strategy.

You need to take control as much as you can, whenever you can.

Designing Your System
Being profitable means understanding what parts of the real estate investment process are profitable, and which take up your valuable time. Find out where you can delegate and automate, and focus your attention on the tasks that generate profits. Use the tools we have in place, including the RealeFlow business management system, which helps you match buyers and properties. Having the right system will help you streamline your workflow and allow you to construct a business that begins to bring in money.

SREC’s goal is to help you realize all the benefits of a properly constructed real estate investment business can bring, including more money in your pocket and time to enjoy the lifestyle you want to have. Have you joined our Silver Membership program yet? Doing so gives you access to some of the best real estate investing tools on the market!

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