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Investing Strategies

Short Sale Deals Part I: The Process Has Changed

jokeDid you—like me—ride the short sale wave from 2008 to 2011? And have you ever wondered whether that wave is really over?

Jason Lucchesi here, and in my 2-part mini-series about short sales, we’re going to talk about:

  • the way short sales used to be done
  • why they changed
  • how they’re done now
  • ways to find these properties
  • and more…

Plenty of investors—myself included—went after a ton of short sales from 2008 until 2011. We still go after them today but in a much different capacity. It’s time for a history lesson on the short sale, then some tips on how to turn these sales into a key part of your investing strategy.

The (Recent) History of the Short Sale

From 2008 to 2011 investors found individuals in a distressed state through the owner of records. Investors contacted these individuals and offered to purchase their properties at a discounted price that the investor would negotiate with the bank.

The bank determined the price through a BPO (a broker price opinion). The BPO is based on a broker’s assessment after visiting the property. The bank then gave the investor an amount they would approve for the property.

Investors already had an end buyer secured, so when the bank was ready to make the sale, the investor would do an A to B, B to C transaction where the investor closed on the property and the same day he resold it to the end buyer.

Banks Bring Tides of Change

Then, in 2010 banks started changing things up. They liked that investors were getting involved, but they didn’t like some of the profits that investors were making. So they made some tweaks to their approval letters.

A couple of different things happened...

Their approval letters suddenly included a deed restriction, meaning that investors could not resell the property within a certain period of time. Most deed restrictions stated that investors couldn’t resell the property for 30 days. Some of them today are as long as 90 days!

Suddenly, investors had to hold a property and weren’t able to resell it the same day. So no more A to B, B to C transactions.

Now investors have to hold properties until the deed restriction ends on either the 31st day or the 91st day, depending on the deed restriction.

Goodbye Short Sale?

A lot of people got out of the game once that start happening. Many investors who didn’t have as much capital weren’t sure how to handle the deed restrictions and got out.

shortThat opened the door for individuals like me.

As far as I’m concerned, there’s an opportunity in short sales: There are still distressed properties and individuals who need out, but now it’s a waiting game. Instead of focusing intensely on short sales by sending out hundreds of letters and knocking on doors, the market is the MLS. Find a property on the MLS, put in an offer, and wait.

But waiting isn’t the same as doing nothing. Other properties come in during the wait. These might include mold-damaged properties, fire-damaged properties and estates for sale…

That way, you’re constantly bringing in deals and not relying on one particular source.

Where to Find Short Sales

You can get the short sales from real estate agents because they have access to the MLS.

If you want to go out and do some of this on your own, you can go down to the county recorder’s office and look for properties that have recently gone into foreclosure. You’re typically looking for a notice of default (NOD) or lis pendens. If you’re in a deed trust state, it might be worded a little bit differently.

But how do you move from a list of addresses to a short sale? We’ll talk about that in Part II. Don’t miss it.

What’s Your Short Sale Story?

How have you made successful short sales? Let me know below!


Do It To It! Immediate Action Steps

1. Network with other investors and ask about their experience with short sales.

2. Get in touch with a real estate agent you trust to work on your power team and look for short sales.

3. Keep your options open and don’t just wait on one short sale.

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