Short Sale Possibility?
Hey there...newby investor here, researching for a while looking for my first deal. I am an on-site real estate agent, so I have a decent understanding for RE in general.
I have found a good opportunity and am wondering about whether I should attmept to do a short sale. I am simply not very familiar with it. I have learned a bit on here as well in a few of my books.
Here are the details:
Older ranch style home with a basement. Basement has carpet paint and drywall. SQ Footage for house is about 2100 (including basement). House needs central HVAC (has window units) new paint and carpet..maybe a few other small items...about 6 K total repairs. Have a close friend that installs HVAC and quoted me 3k for that. Yipee. Overall decent shape.
Homeowner owes 84K, higher end comps are somewhere around 115-120K. She has 4K in arrears. Note is $577 a month.
She said she would be interested in doing a subject to, but I am really not in a position to pay the 4K in arrears and 6K in repairs.
I thought about doing a short sale for somewhere around 65K then doing a HML. HM Lender said I can use my own appaiser for the ARV as long as it was within 120 days. Have a good friend that does appraising. There are some comps in the area as low as 89k for homes in disarray., that I could use for the short sale presentation.
I am not completely familiar with short sales so I have really only read to get the permission from the homeowner in writing to speak to the lender. After signing purchase agreement then put package together comprised of lower comps, high end estimates for repairs and less than generous pictures, possibly mentioning the additional (and unwanted) costs of foreclosing.
My exit strategy is to do a non-seasoning refi (which I have the lender to do so) and turn into a rental property.
What do you think?
Who holds the first? Where do they stand in terms of NOD, etc. on the foreclosure?
Other than that, youv'e got the basic idea.
Short sale canidates are best when the amount owed is at or greater than market value. A lender will agree to a short sale because they realize that after all costs of foreclosing and reselling the property they likely will only make XX dollars back. Its easier to short sale because they can just write it off their books and be done with it.
Looking at your numbers it looks as though there is still decent equity in the property. I would concentrate on finding a loan for $10k needed. Maybe your broker could partner with you or a higher performing RE agent with access to cash. You can likely do a balance transfer to your company name on your credit card for 10k.
I'm assuming that the 84k owed includes the 4k in arrears. If you can buy for that 84k + 6k repairs + 2k holding costs you have a potential of 23-28k on your first deal!
I wouldn't mess with a short sale personally. I would concentrate on sub2.
If you really don't have the money you can get the house under contract and wholesale it to another investor for 5k maybe. I'm not entirely familiar with how much you would make doing this because I have not done it but it is an option. You can find these investors by calling the "we buy houses" ads in the newspaper.
GOOD LUCK
Definitely a great Subject To situation.
Get it under contract and get an Auth. to Release Info or (even better) Power of Atty to work with the lender. What you want to do is work out either a Forbearance Agreement or a Modification. With a Forbearance, you probably need 1/2 of the delinquent amount up front and the rest in additional monthly payments for 6-12 months. A modification takes the delinquent amount and just adds it into the loan. Both of these arrangements will be made between the Homeowner and the Lender, not you as a buyer. I like to be a "Friend" or "Person Helping the Homeowner out of Foreclosure".
Then I would work with your Friend and see if he'll do the work and possibly get paid later...maybe even get a percentage cut from your profits.
Good luck!
I may be running these numbers incorrectly, so please point out this, if so. If the homeowner owes 84k and I am able to get it thru a short sale for say 65k, then turn around and do a HML for 65% of the ARV which maight be as high as 115k, then ultimately I can purchase the home, and also have the points, CC and a portion of the repairs in escrow, correct?
Then possibly do a nonseasoning refi and flip the home for less the FMV, still making a healthy profit....
Purchase price through short sale: $65k-70k
ARV:$115k
HML amount $74000
Repair and possibly flip for around $105k.
What would be the advantages or disadvantages of this method over doing a subject to? The subject to seems to have a lower ROI and will also cause us to pull more out of pocket initially.
Any thoughts?
Thanks in advance.