16 Comments

1. Gigi
   August 2nd, 2007 at 9:03 pm

   Lots of good information, I did not know before. Thanks.
2. mike
   August 3rd, 2007 at 4:54 am

   All of this is interesting, but I would much rather hear about done deals so that I know what does work, rather than hearing about a bunch of deals that are being worked on so I only know what might work. Barbara didn’t mention one single deal she completed, only a bunch of deals she is working on.

   The other problem is that any home purchased with the last 5 years may have been purchased at an inflated value due to the ability to obtain sub prime and/or low rate mortgages. In these cases a short sale has to be considered because prices are falling and no one knows where the bottom will be. Current percieved market value may end up being 10-20% or more higher than the potential sales price. If a homeowner tries to sell the home and is unable, what makes the investor think that he or she will be able to sell the property even if they are able to buy it 20% under the current mortgage balance. If the property was purchased during the boom years at a 50% or better inflated price which may very well be the case and financed even with the standard 20% down, it may be mortgaged at 30+/- more than it real saleable value. Any mortgage less than 5 years in existance with ownership being the same time frame is nothing more than a gamble even on a short sale. The odds of making profit are actually better on a Roulette wheel at the nearest casino.
3. Joshua Houghton
   August 3rd, 2007 at 10:51 am

   Great post I didn’t know some of this before.
4. Rainy
   August 3rd, 2007 at 4:43 pm

   Very informational. I’m a Realtor/Investor becoming a short sale specialist in southern California; specifically San Diego. Ten out of my 20 years in the Navy as a Cryptologic Korean Linguist/Technician was spent in the Baltimore/Washington DC area and related well with what Barbara spoke of. Now that I’ve heard the information, background so to speak of investors working short sales, I would like to see/hear an actual case study of one that would incorporate most everything one would encounter throughout the process; including the rehab and sale.
5. Ray
   August 3rd, 2007 at 6:53 pm

   I agree with “Mike”…what makes a home purchased w/in the last 5 years even something worth considering for a short sale, given the fluctuation of home prices? I too, would also much rather hear about ‘done deals’, as opposed to ‘deals in the works’.

   Ray
6. JoEllen
   August 4th, 2007 at 9:24 am

   Good stuff. Have given a couple short sales to an area investor, ad I really appreciated hearing about the ethical side of deciding who qualifies foe help. Makes me want to hear more! Thanks.
7. MitchellRay
   August 4th, 2007 at 9:26 am

   I guess Mike and Ray didn’t hear the end of the program…the case studies usually deal with specific done deals but this particular case study was a “topic” discussion. Geez, lighten up guys.

   Great information, JP. Well done. Thanks for the discussion. I learned some things, but also have a nice list of questions about the process I’ll need to get answered.
8. Shaun McCloskey
   August 4th, 2007 at 10:08 am

   Thanks to all for watching and posting!!

   I’d like to clear up some misconceptions that people may have regarding what’s been going on in real estate, and what has happened more recently. The fact is, there’s been some MAJOR inflation going on in the past 5 years. More recently, however, we’ve seen a slow down of inflation in some areas of the country, and COMPLETE HALT on inflation in other areas, and there are also areas around the country that are experiencing considerable deflation for the first time in many years.

   Welcome to real estate.

   Real Estate, just like all other forms of investing, has cycles. Truth be told, those who know how to play the game can make money in both an up and a down market. (Don’t take my word for it, read Rich Dad, Poor Dad by Robert Kiyosaki or any other book on investment strategies.)

   I just checked the price of Gold in the US, which fluctuates much like real estate. It’s up to $672.00 an ounce. If what Mike was suggesting was the case, that would mean that there’s no way that I could buy one ounce of gold for 80% of it’s current value, and then turn around and sell it to make a profit. (Which means I would be buying one ounce for $537.60) I call tell you that if you can get any product for a discount and sell it for a higher price even before you have to buy it, you are in one heck of a business.

   The whole purpose of the short sale is to provide us with the necessary equity that we NEED to have to make the deal profitable. There’s no rule that says you can only get a 20% discount on a mortgage that’s already overleveraged by 120%. If that were the case, we would be paying full retail for properties, and I can assure you we’re not even coming close to paying retail. We negotiated a 1st mortgage in the amount of $170,000 all the way down to $9,500. There is no “standard” percentage of discount in short sales.

   So, if John Smith owes $1,000 for an ounce of gold that’s only worth $672.00 right now, does that mean that I’m going to want to purchase their gold from them if I can get a 20% discount? Of course not. If that were the case, I would be paying $800 for gold that I could get ANYWHERE ELSE for $672 since that’s the current market price.

   Just because John Smith over paid for the gold two years ago for $1,000 AND owes too much money on it doesn’t meant that I’m going follow right behind him and make the same stupid move. That wouldn’t make sense, right?

   Of course not.

   Here’s the catch… If I want to be able to make money on the gold by selling it later there has to be a market that’s willing to buy it, right? No buyer or no demand for my product = no sale = no profit for me no matter how little I paid for the product.

   The only way that you can NOT make money in a down market is if there is no demand for whatever product you’re selling. In our case, real estate. (Replace “real estate” with gold, watches, luxury cars, broom sticks, pencils, whatever…)

   What would make Mike’s statement factual is if there were no longer any demand for real estate and no one was out there buying houses right now. I think we know that’s not the case. And although there may be deflation occurring in some areas of the country, all that means is that you now have to take that into consideration and purchase properties cheaper than you did just 2 years ago. There are still buyers out there, they just want a better deal than they did before. You should do the same.

   Regardless of what the homeowner owes on their house, the only thing that matters in short sales is what the house is currently worth. Even more important: what the lender PERCEIVES the house to be worth. Lending institutions aren’t dumb, they know that the real estate market has been changing over the past 12-18 months. This is why short sales are crucially important to lenders. They NEED us as much as we need them.

   So make no mistake about it. There is no roulette wheel here. The risks that we take in every short sale we do are carefully calculated to ensure that we will make a profit with as minimal risk as possible. And we make sure to leave plenty of room in our offer price for error JUST INCASE we mistakenly calculate expenses “too low” or sales price “too high.”

   I hope this helps.

   Shaun McCloskey
9. Ricardo Partridge
   August 4th, 2007 at 2:03 pm

   Where do you start looking (I’m new in the business)for the pre-foreclose or before the 90 days are due?
   I’m here in Clearwater FL/ Tampa and Foreclosure are all over the place I keep meeting people that know some one who just foreclosed.
   Do you need to call the Banks and ask for a list of pre-foreclose?

   Got to start some place I’m not sure if I hear Barbara said where exactly she finds the pre-foreclosure deals.

   Thanks guys Barbara was Great I wish I could go to her class I’LL be seat in the front row.

   Ricardo
10. Kelly Raymond
    August 5th, 2007 at 9:20 am

    I don’t really have a comment, but a question. I’m a young college graduate and because I have so many college loans my credit is not that good. I want to get into the property management and flipping business, but I dont know how to go about starting. I have a business plan in the works, but no money saved. I have a good paying job right now, but a lot of bills from college. Any ideas out there of how I can get started with finances?
11. Rob
    August 5th, 2007 at 9:42 am

    I Thought Shawn completely explained the difference between a good short sale and a bad short sale. Thank you. Rob
12. Ed (Upstate NY)
    August 5th, 2007 at 9:47 am

    Mike & Ray…
    Listen to what Shaun said…
    Its all in the formula they use in order
    to buy cheap enough so they can resell it
    to a O/O or a rehabber…
    Its similar to the basic wholesaling formula:
    ARV*70%-Repairs-Wholesaling Fee=Maximum Offer
13. Eric Flanigan
    August 6th, 2007 at 5:43 am

    Hi JP!

    Let me take a moment to express my heartfelt gratitude and appreciation. In short, I have been in, out, and around the FH community for years (oh, since maybe 2002 I think)…and even then, it was always a favorite watering hole (or fishing hole for info actually!)…it’s where I got my first real introduction to the business…how I came to know and meet Steve…a wonderful, powerful, foundational stepping stone of education, personal growth, and general REI enlightenment.

    I’m nearly ashamed to admit that because of life pulling me in 3,562 directions, I don’t visit the forums that frequently anymore (shame on me)…but I do scan from time to time and it is apparent that it is alive and thriving.

    Let me close by stating an observation (and perhaps it is obvious) that since FH has brought you on board the changes to the site, content, and services to the community have been phenomenal…and probably (industrially speaking) mind blowing.

    Combine the Flip Tips, Case Studies, Saturday Workshops (which are and by far offer and deliver the MOST incredible no-punches-pulled REI value for your measley dollars in the universe), Forums, Continuing Education items…and a plethora of other goodies…it is no wonder that this site continues to prove and provide just the absolute BEST REI related solutions to curiostity seekers, newbies, intermediates, to beyond…hands down.

    You guys are awesome. It is very clear to me that you are utilizing your time, talent, and treasure to serve others (hmmm, where have I heard THAT before?).

    You are a blessing to us all.

    Eric
14. Candace
    August 7th, 2007 at 1:25 pm

    Hi JP,

    Very nice case study on short sales. Really appreciated Barbara and Shaun bringing us up to date on some of the new laws being inacted in several states. Due to the problems being generated from the real estae slow down in several parts of the nation, more states may be passing what I call knee jerk reaction legislation that will affect how we do business.

    Hearing about deals from start to finish is informative but there was valuable information shared in this case study that will help us do better in our business in general.

    Thank you JP, Barabara and Shaun

    Candace
15. Carey_PA
    August 17th, 2007 at 1:26 pm

    I thought this piece was very informative. Thanks Barb, Shaun and JP.
16. John
    August 27th, 2007 at 6:33 pm

    nice case study

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