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Real Estate Investing FAQ – How To Do A Short Sale
By Tom Dunn | September 1, 2008
Short sale real estate investing doesn’t need to be complicated. I know there are people who have written entire books and courses on short sale real estate investing, but anyone can be successful once they master a few very simple tactics.
First, a definition. Short sale real estate investing is simply buying a piece of property from a lender for less than the balance owed on the property. To make this really clear, here’s an example:
Example Of A Short Sale
Let’s say that you get a phone call from Mr. Seller, who informs you he is three months behind on his mortgage payments to Big Bank. The property has a fair market value of $150,000, and Mr. Seller has a mortgage balance of $140,000. The home is either already in foreclosure, or very nearly so. Short sale real estate investing in this case means that you, negotiating with Big Bank, would purchase the property for less than the mortgage balance of $140,000- often much less.
Why would Big Bank do this? Simple- because in many cases, the lender stands to lose a whole lot of money if they have to foreclose on a property. The lesser of two evils is to accept your “short sale real estate investing” offer for, say $120,000.
Two Types Of Short Sale
There are two categories of short sale real estate investing. First, there’s the short sale you negotiate directly with the lender, as in the example above. The second type of short sale real estate investing is when you purchase a property listed with a Realtor, one which the lender has already foreclosed on and taken possession of. In this case, you are simply offering the lender – which has now become the owner of record – less than what was owed on the property.
The secret to being successful with this second type of short sale real estate investing is in forging a relationship with the right local Realtor. Rest assured, there are one or two Realty offices in your area that handle the majority of foreclosures, and in those offices there is often one or two agents that specialize in foreclosures and short sale real estate investing. Find those agents, and you have located a potential gravy train.
The key in building your relationship with these Realtors is to let them know that you can perform, in other words that you will do exactly what you say you will do in short sale real estate investing. When you make an offer, follow through on it every time. When you do that, the agent will know that you are the investor to turn to whenever he has a short sale real estate investing deal that’s too good to pass up. He’ll call you first!
For the other category of short sale real estate investing, where you are negotiating directly with the lender, there is also a secret key. I call it “relentlessness” and it’s what separates the pretenders from the successful short sale real estate investors. It’s the ability to dig until you find the right person at the lender to speak with, and then tenaciously negotiating until the lender either accepts your offer or tells you to pound salt.
How To ‘Take Down’ A Short Sale Deal
Let me walk you through an example of short sale real estate investing. We’ll start with the same scenario from above. Mr. Seller’s lender Big Bank has a foreclosure department, often known as the REO (Real Estate Owned) Department, so you start by phoning there. After several attempts, you finally get through to Mr. Admin, who informs you that, sorry, no, Big Bank doesn’t accept short sale offers from investors. Oh, well, you think, so much for your first short sale real estate investing effort.
Not so fast. In the spirit of being truly relentless you decide to try a back door approach. Remembering that the friend of a friend is the secretary to the executive vice president of Big Bank, you make a few more phone calls, and finally reach Mr. VP. He informs you that Mr. Admin can’t make any decisions, and you really need to be talking to Mrs. Powerful, who can. Now we’re getting somewhere.
In a roundabout way, you have just gotten the only person in the Big Bank corporate structure with the real power to make deals, and that’s what makes short sale real estate investing work. Not every lender will have such a person, but some will, and those will be the lenders you can work with. Over time you will get to know who you can work with, and who you can’t.
One thing is certain- you will never know until you try. Once you’ve located and negotiated with a few Mrs. Powerful’s, you will begin to develop procedures and tactics for short sale real estate investing that will work for you, time and time again. That’s the way every successful business works, and short sale real estate investing is no different.
These are the simple keys to successful short sale real estate investing. Get to know the best foreclosure Realtors in your area, be the type of investor who follows through, be relentless, and learn as you go.
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