Short sales are in the news, as of late. As a real estate investor, this type of transaction can be profitable, so it’s important to ask the following questions before you decide to dive in.
How quickly will I see an upturn in my investment properties?
Let’s face it, unless you’ve made a few mistakes up front, you’ll be pulling the “toss-off” every time you describe a transaction as short…because you won’t know for certain if your properties will see a positive outcome. This is exactly why you want to ask the investor/ Former Realtor (if that person is still working in the business) how he or she plans to avoid the “taste problem” of having your deals immediately flip to another buyer.
I find that conservative complete financial statements and verifiable income is essential to the successful approval process. Have the Real Estate Agent or your Investor talk about how they are planning on using those numbers verses your trustingitative offer on the property to prove your confidence in the math. You want to be assured the numbers will add up on your deals, putting you in the position to blame if the deal is a bust.
Are you careful about the expenses you may face? There’s nothing worse than a loss of profit due to “not earning the park”.
The expenses and fees incurred during the short sale process can be used in court as “excessive expenses” on your purchase agreement. If you want the deal, you have to answer for them.
Are there pending rate raises available to offset the loss of profit?
To offset a potential loss in profit during the short sale process, you must clearly show an alternative to a short sale. You must ask your Investor to show you five properties that are currently renting and are expected to fare strongly in an increase in rent.
Are you going to provide references for the people you wholesale to?
This may seem like a no-brainer, but one glaring reason for wholesale properties not renting so well is the fact most wholesale investors don’t actually have the credit to rent the units. Ask your Investor to provide references and then verify that they are working with a trusted vendor in the name of your Homeownership Education. Your responsibility is to educate them on the process. You must at least document that you have done a background check, personal interviews, and background checks as a potential landlord.
Do you plan to maintain, manage, and preserve the property in a functional status for Secure Realty Investors?
As most of you know, investing in Short Sales, Hard Money, and Real Estate Owned (REO) properties is considered to be a long-term process. It’s considered to be a “ometer” of our value as a Real Estate Investing Expert.
A wide variety of questions need to be answered before you get into a transaction on a short-sale property, as there isn’t much written information out there to help you make a sound judgment. However, the best way to avoid the common pitfalls is by putting together your very own agreement.
As the investor, you must determine who exactly is on your team (lenders, attorneys, title companies, contractors, service providers, maintenance companies, repair people, appraisers, banks, etc.). Once you’ve defined the team to complete your transaction, you’re more well informed than your Buyer and you are therefore better prepared to go straight to the closing table and reap the rightfully erected rewards.
How long will I see a profit?
There will be instances when your profit does not come in right away, and you know it. However, usually the process of the transaction will take a while to see the light of the day…waiting for the right buyer at the appropriate price, the time of right sale, etc.
Since the average purchase and holding period in any real estate deal is 6 months, and you have to keep in mind holding costs to be incurred over this period of time, you must have a good understanding of what the holding costs will be before you agree to a value on the property.
How will I know if I have categorized a deal correctly?
Violation of Realtor Redents, Unqualify Buyers, Over Valuations, Over Aluminum Prices or dielectric test for bucket trucks, and critically low rents will all ensure that you will know right away if the property Businesses will serve as your investment or not. There are also times where we see sales not reported and thus, the right seller may be incorrectly assumed to be a distressed seller whose needs would be better served by a short sale (seller is already distressed, and you’re assumed to be willing to facilitate by separating yourself from the transaction).