Real Estate Investors Benefit With Short Sales

Once uncommon, real estate short sales are now the norm.

The plummeting housing market in the United States, combined with record numbers of foreclosures, has caused an explosion in the number of short sales or pre-foreclosure sales. These sales occur when the homeowner and the mortgage lender agree to sell a home for less than what is owed to another buyer.

And they’re ripe opportunities for investors to buy homes and properties at below-market values.

The Benefits of Short Sales

Pre-foreclosure sales offer benefits to buyers, sellers and investors: The new buyer buys the home for the “short” amount with built-in equity and at a much cheaper price. The previous owner avoids foreclosure, saves their credit rating, and is generally able to buy a home again after a few years. The short sale investor gets the investment property at below market value pricing.

The Short Sales Market

With millions of foreclosed properties dragging down their balance sheets – and forcing some banks to close their doors – short sales are driving the troubled housing market.

These sales are popular for one primary reason: One in every 136 homes in the United States is in foreclosure, according to recent figures from RealtyTrac Inc.

Many of those homes are potential candidates for short sales. And,  as job losses mount, even more homes may be sold this way – and serve as a boon to real estate investors who want to buy homes with instant equity at low prices.

Banks In The Short Sale Business

So many homes are in pre-foreclosure or foreclosure that banks have set up departments to handle the overflow. The bank isn’t in the business of holding or maintaining foreclosed homes; it costs time and money to maintain a home in default. The bank loses money when the property is in foreclosure because no one pays the mortgage.

So, selling the property at a lower price is often the best option for the bank compared to not generating any income at all.
Here’s where short sale investors come in. Most banks have a process for short sales. With a bit of patience – it takes anywhere from three to nine months to get your deal approved — you can get investment properties at great prices.

The process can be cumbersome so it’s best to use an experienced short sale agent or negotiator. It can take months for the bank to accept your short sale offer, but the benefits may very well be worth the wait.

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Lease Options Offer Opportunities In Slow Real Estate Markets

If you’re looking to unload properties when the market hits a snag, lease options are one of the industry’s best-kept secrets.

A lease option is an agreement between a buyer and seller that gives the buyer the option to buy a house at the end of the agreement. The seller must sell the property if the buyer decides to exercise the option to buy it. The seller also agrees that they will not sell the property to anyone else before the option expires.

The buyer is the lessee (the person who leases the home) and the homeowner. At the end of the lease, the lessee has the option to purchase the home. This method of buying homes has become more popular as the real estate market has slowed to a crawl.

Lease Options Offer Options For Real Estate Investors

Lease options offer opportunities in up and down markets.

As an investor, you stand to gain, especially if the lessee decides to purchase the property at a higher cost than what you could receive on the market for it at the end of the option.

What’s so unique about lease options is that most of them – 95 percent – aren’t exercised. This means plenty of opportunities for sellers. In exchange for a lease option, sellers often require a down payment and monthly rent payments are generally higher.

Typically, the option is within two or three years or enough time for the buyers to qualify for financing. Lease options are commonly used options for people who want to own a home, but don’t qualify.

If the seller doesn’t exercise the option to buy, they don’t get a refund on their downpayment. That income goes to the property owner. The downpayment is typically 3 to 5 percent of the set purchase price, although prices can vary.

Leasing Options Offer Benefits To Investors, Buyers

There are benefits for both buyers and sellers: The buyer gets a house at a pre-determined price. The seller gets more income from the buyer and a better quality tenant who is usually committed to taking good care of the property.

Many buyers resort to lease options when they can’t sell their homes using traditional real estate methods. Lease options allow the homeowners to keep income coming in from rent as well as tax advantages.

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Wholesaling homes has never been so popular: Thousands of real estate investors are eager to capitalize on the lowest real estate prices in history, but many don’t know where to start.

Many novice wholesale investors think you need lots of money or excellent credit to succeed. Or, they think there are complicated classes or licensing.

I’m going to show you how anyone can get started as a wholesale investor – even someone with absolutely no experience.

Wholesaling Explained

Usually, there’s a lot of mystery about wholesaling. But it’s pretty easy when you think of it in these terms: You are the middleman. It’s your job to find a seller, put the house under contract and assign a contract to a buyer – nothing else.

You don’t have to put any money down, hire an attorney, conduct a closing or anything else that is involved with traditional real estate. You collect a check for setting the deal up.

Wholesale Investors Depend On Motivated Sellers

The difference between success and failure in this business boils down to one thing: motivated sellers.

It’s your job to find motivated sellers, folks who unfortunately find themselves in foreclosure or who have to sell their homes quickly. Motivated sellers are a literal goldmine.

These days, there is an almost endless supply of motivated sellers.

The battered housing market – the glut of unsold homes, record low housing prices and epidemic levels of foreclosures — is a wholesale investors’ best friend.

Finding Buyers

You’ve found motivated sellers. Now all you have to do is find buyers. But you aren’t just looking for any buyer; you’re looking for cash investors. This is where your fee comes in. You are paid a finder’s fee by the buyer to find the deal.

You’re the broker, and it’s a win-win for everyone involved. Desperate sellers have a buyer for their home and investors save time, money and hassle finding deals on their own. You’re literally handing investors deals.

There are plenty of these types of investors looking for deals. Usually, they’re the folks you see advertising “We Buy Homes.” Or, you can attend local real estate investment meetings to find buyers who are looking for deals.

Now, get the house under contract for a price that allows you and the investor to make money.

Here’s the process:

1. Find a motivated seller
2. Agree on a price that lets you sell the house quickly and make a profit.
3. Get the house under contract.
4. Put a clause in the contract that allows you to assign the contract.
5. Find a cash buyer.
6. Make sure the buyer closes.
7. Cash your check.

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The late-night TV commercials are all too familiar: Buy REO (Real Estate Owned) homes for pennies on the dollar!

But can you?

For sure, real estate investors can benefit from the glut of REO properties now on the market. These properties are foreclosures that go back to the mortgage company when they aren’t sold at auction.

They end up at the bank, waiting for investors like you.

REOs For Sale

These deals offer plenty of potential for savvy real estate investors. Buying REOs is a smart strategy for seasoned investors. With so many homes in foreclosure – an estimated one in five homeowners owe more on their homes than what they’re worth – real estate owned properties are just one way that successful real estate investors can cash in on bargains.

Generally, most foreclosed homes aren’t sold at auction because the bank is owed more than what the property is worth. It goes back to the bank and becomes an REO property.

Now what? The mortgage loan is erased. The bank may handle the eviction, do some repairs and negotiate with the IRS for tax liens. Now, here is where you as an investor come in.

What To Look For In Bank REOs

Not every real estate owned property is a great deal.

· Make sure your offer is comparable to prices of other nearby homes.

· Factor in the costs of renovations.

· Keep your eye on market value and don’t feel pressured to pay more.

You should do the same due diligence on bank-owned properties as you would any property that you buy.

Each bank may have a different process for selling homes, however, they’re all concerned about the bottom line. Banks aren’t in the home business, but they have dedicated departments that do nothing but sell and manage this type of inventory.

Making An Offer

The bank will sell the home “as-is” without any warranty. Before you make an offer, make sure you find out the following details:

· Are there inspection reports you need to see?

· Find out what work, if any, the bank has agreed to perform.

· Find out how long it takes for the bank to accept the offer.

· Find out how your agent must deliver the offer.

Once you make an offer, be prepared for the bank to counter offer. This is normal, and you should plan for this.

Make sure that your offer includes an inspection period that allows you to end the sale if there are damages that you didn’t anticipate. Your offer should be easy to accept and should include a pre-approval letter for your REO home.