How Important Is It Not To Seem Like A...
I'm working with a partner that has been doing creative RE for 8 years, and he has only done 4 successfull shortsales, I suspect that he has tried to do many others only to have the offer shot down.
He tried to look like the "Homeowners Friend" the first time, but when the loss mitigation depo got his fax and seen his letterhead, they knew he was an investor and didnt want to give him a reasonable price.
How important is it to come off as a "Friend" that does a little RE on the side verses letting the lender know up front that you are an investor that does this on a regular basis? will that mean the difference between a 10% reduction in payoff verses I've seen 50% reduction? or is it just the luck of the draw?
Thanx-
Looks to me like your partner did well to get 4 short sales working it this way. I hope I can help with some comments on how it works:
The lenders make deals to serve their own financial advantage, not to reward friends or punish investors. The exception is that it must be a " hands off" deal, i.e. no colluding among the homeowners' friends and family to get a cheap sale, because the seller doesn't want to pay in full. Lenders don't want to reward the seller or those close to him for failure to pay money owed the bank.
So you see, you have it backwards: being a true friend could be a liability, whereas being an investor should not, if you have the money and interact with them professionally and ethically.
Maybe pretending to be a friend when he was not is what cost your partner his sale. Integrity counts in business relationships. Would you want to do business with someone who is trying to deceive you?
However, more likely the price he offered was too low. Payoff has nothing to do with the minimum aceptable sales price.
Lenders base their minimum sales price on a percentage of market value, not payoff. Payoff has nothing to do with what a property should sell for. Values appreciate or depreciate, but the mortgage loan goes down slowly (usually).
Here's an example of one I recently did that shows how you could get a substantial percentage off: Let's say a house sells for $100,000 in 2001. Then, for a variety of reasons, the entire neighborhood loses value. The house is worth $75,000 three years later but the homeowner financed 100% plus closing costs at a high interest rate, and owes $105,000. You can probably buy this house for somewhat less than $75,000, maybe in the mid-60's. Therefore, it would be a substantial reduction in re: payoff, but not nearly as much as compared to value. Even so, some lenders would balk at this big a loss.
Another example to show why you can't depend on payoff to indicate what you can purchase for: Say an owner buys a home for $200,000. In 10 years it appreciates in value to $400,000, as can happen in fast-growing areas, and the owner only owes $140,000. Would you expect people as financially knowledgeable as bankers to sell it to you for 50 % of the payoff, in this case $70,000, when it is worth $400,000?
Nope., Yyou would have to pay far more than the payoff to get the house, although you could probably still get it for a good deal. Otherwise, the lender would foreclose and get their full payoff plus all legal fees and expenses. Any excess would go to the homeowner, whose interests are protected to some degree by the law.
Bankers aren't dumb and they have deep pockets. They are under no pressure to sell, so they'll take a loss to avoid the expense and hassle of foreclosure, but they won't give property away.
Still,they will give you enough latitude that with some good research on market values, you can make some profits doing short sales. In fact, you deserve to. They are a hassle.
You will find some lenders very easy to work with and others who are all but impossible. Don't take it personally. Just hang in there where it looks as if it will pay off.
Good luck!
terrific response.
Sweetdealmaker, I couldn't have said it better myself.
The best advice I can give anyone in any aspect of real estate investing is to get away from the cloak and dagger stuff. Be upfront and honest, and most often success will be your reward.