OfflineWhat I really like about investing in short sales is you will not risk ANY of your money and have virtually zero liability. That's because you can use the the Option paperwork. You simply secure the option to buy the property sometime in future (usually 6-12 months) and you only risk a non-refundable deposit that is usually about $10. You need to see what is considered "consideration" in your state. This is usually less than $100 for almost all states.
You don't need to worry about this deposit because your end-buyer is also going to pay you a non-refundable deposit that is at LEAST equal to the amount you gave the homeowner for your option agreement. The option money can be used toward closing costs. It's a way of making sure the end-buyer is serious and won't bail once the property is under contract with them. I still recommend you take back up offers too.
Once you get the Option paperwork signed you now have an equitable interest in the property. That means you can sell the property outright or even list it on the MLS with a Realtor. You need to make sure you file the "Notice of Option Agreement" at the county courthouse where the property presides. Once you do this you now have put the world on notice that you have equitable interest in the property. Your next step is going to be marketing to find an end-buyer. This is going to be the person that you sell the property to after you exercise your option to purchase it at closing.
You can sell the property after you negotiate a short sale on it without even buying it. Actually you do buy it AT CLOSING, but that NEVER happens unless you can find an end-buyer to buy it from you. You want to make sure you are within the option time frame you agreed with the homeowner to do this.
Basically the magic on how this works is very simple.
1. You get the option paperwork signed with the homeowner
2. You file the Notice of Option at the county courthouse
3. You negotiate and get a short sale approved
4. You find an end-buyer to buy the property by listing it on MLS or Craigslist, for example.
5. You go to closing and use 1DayFunds money to purchase the short sale for your Option price and then immediately sell the property to your end-buyer by exercising your option.
6. The lender gets paid the agreed short sale price and the end-buyer gets a discounted property.
7. You get paid the difference between the short sale price and what you sold the house to your end-buyer.
That's it.
The homeowner will not have any issue with the fact you are making a profit and here's why. The property did NOT have any equity when you began short sale negotiations. Only from you applying your specialized knowledge to get a short sale completed did you help the homeowner avoid a foreclosure. You created equity out of thin air from your negotiation skills. The end-buyer is aware the property is being sold after it was involved in a short sale transaction so everything is on the "up-and-up", legal and fully disclosed.
When you use the option agreement for a short sale everything is going to happen on the same day. This is if you are flipping it via a double closing. Here is quick breakdown on the process.
Closing Definition
A- B - C (where "A" is the homeowner "B" is you the Investor and "C" is the end-buyer
Here is what's happening.
First Closing A - B (the homeowner is providing you the Investor with an Option Agreement)
Second Closing
B - C (you the Investor are using your equitable interest and marketing the property for sale. You find an end-buyer and exercise your option)
The end-buyer may be using a lender to pay for the property. If that is the case the lenders underwriter for the end-buyer will request a title commitment. On the title commitment it will show you the Investor as an exception on title from the Notice of Option. In other words, the end-buyer will not be able to get clear and marketable title unless the title company allows you the Investor to exercise your option agreement. Once you do that that is how you get paid. You get paid the difference between what you got the short sale accepted (hence your option "strike" price) and how much you sold the property to the end-buyer.
And if an end-buyer is using cash it makes everything even easier because they probably won't even care about a title commitment. It's a nearly an error-proof way of making HUGE BIG PAYCHECKS in real estate investing without risking ANY of your own MONEY while serving the homeowner, the lender and your end-buyer too.
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
That's it in a nut shell.A B C and right to the point. Thank you Oh so much for that input, I'm failing that under Short Sells straight and to the point. Thanks Again, BigRed
You don't need to worry about this deposit because your end-buyer is also going to pay you a non-refundable deposit that is at LEAST equal to the amount you gave the homeowner for your option agreement. The option money can be used toward closing costs. It's a way of making sure the end-buyer is serious and won't bail once the property is under contract with them. I still recommend you take back up offers too.
Once you get the Option paperwork signed you now have an equitable interest in the property. That means you can sell the property outright or even list it on the MLS with a Realtor. You need to make sure you file the "Notice of Option Agreement" at the county courthouse where the property presides. Once you do this you now have put the world on notice that you have equitable interest in the property. Your next step is going to be marketing to find an end-buyer. This is going to be the person that you sell the property to after you exercise your option to purchase it at closing.
You can sell the property after you negotiate a short sale on it without even buying it. Actually you do buy it AT CLOSING, but that NEVER happens unless you can find an end-buyer to buy it from you. You want to make sure you are within the option time frame you agreed with the homeowner to do this.
Basically the magic on how this works is very simple.
1. You get the option paperwork signed with the homeowner
2. You file the Notice of Option at the county courthouse
3. You negotiate and get a short sale approved
4. You find an end-buyer to buy the property by listing it on MLS or Craigslist, for example.
5. You go to closing and use 1DayFunds money to purchase the short sale for your Option price and then immediately sell the property to your end-buyer by exercising your option.
6. The lender gets paid the agreed short sale price and the end-buyer gets a discounted property.
7. You get paid the difference between the short sale price and what you sold the house to your end-buyer.
That's it.
The homeowner will not have any issue with the fact you are making a profit and here's why. The property did NOT have any equity when you began short sale negotiations. Only from you applying your specialized knowledge to get a short sale completed did you help the homeowner avoid a foreclosure. You created equity out of thin air from your negotiation skills. The end-buyer is aware the property is being sold after it was involved in a short sale transaction so everything is on the "up-and-up", legal and fully disclosed.
When you use the option agreement for a short sale everything is going to happen on the same day. This is if you are flipping it via a double closing. Here is quick breakdown on the process.
Closing Definition
A- B - C (where "A" is the homeowner "B" is you the Investor and "C" is the end-buyer
Here is what's happening.
First Closing A - B (the homeowner is providing you the Investor with an Option Agreement)
Second Closing
B - C (you the Investor are using your equitable interest and marketing the property for sale. You find an end-buyer and exercise your option)
The end-buyer may be using a lender to pay for the property. If that is the case the lenders underwriter for the end-buyer will request a title commitment. On the title commitment it will show you the Investor as an exception on title from the Notice of Option. In other words, the end-buyer will not be able to get clear and marketable title unless the title company allows you the Investor to exercise your option agreement. Once you do that that is how you get paid. You get paid the difference between what you got the short sale accepted (hence your option "strike" price) and how much you sold the property to the end-buyer.
And if an end-buyer is using cash it makes everything even easier because they probably won't even care about a title commitment. It's a nearly an error-proof way of making HUGE BIG PAYCHECKS in real estate investing without risking ANY of your own MONEY while serving the homeowner, the lender and your end-buyer too.
Hey Sis... do u have a sample copy of the "Notice of Option Agreement" you could email to me? Thanks!
It is my understanding in a short sale that the investor (B party) to the A-B transaction must buy the property, which requires funds. If doing the B-C (end buyer) transaction soon after the A-B closing then funds can be repaid quickly but B still needs to have separate funds for the A-B closing and not use funds from the B-C closing. What are sources of funds when the investor does not have cash, good credit, can't get a mortgage these days. I have contacted hard money sources and they wanted 14% interest and 6 points for a project. There was no money left in the deal for me as the investor. This is a critical hurdle for me, as it probably is for a lot of people starting out.
TC
Hey sis,
I love the post. Short sales is the direction I have decided I really want to go since there are so many preforclosures in MA. In a short sale, does the bank decide which title company gets used, like an REO? I would love to do these transactions with Coastal funding, but wanted to use THIER title company.
Stephen
Hey sis, assuming you have a sample copy of the "Notice of Option Agreemnet," can you send it to me?
Thanks,
Rommel
Go to the CONTRACTS forum and I have posted the Notice of Option contract for you to download.
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
Here is a link.........
http://www.deangraziosi.com/real-estate-forums/contracts/15403/notice-op...
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
Because you have to close twice, the second time with the end buyer, you have to pay comission, closing costs, and also later the tax on your net profit, totally it can add up to a significant amount. That requires that you can negotiate with the owner, actually the lender, down to a HUGE discount in order to make it work, right? I am just new to this, please enlighten me.
hey sis ur an awesome contributor and I want to say thanks for sharing your extensive knowledge. My question is do you need to get the option contract signed by seller before he enters short sale or can you still get an option signed once he has began the short sale??? You know how the banks are
I am new to buying distressed properties though not new to buy real estate. I found out last Thursday that a home in my area was to face foreclosure on Friday. I contacted the attorney who suggested that I send him an email that he would send along to the lender. When the lender called, I discovered that they were a second mortgage holder to the property. They confirmed what my research had already told me that there was equity in the property. The property had a tax value of $156,000 and a market value of around $195,000. The second mortgage lender shared with me that the property owner owned about $56,000 in principal, interest, and fees to them and about $70,000 to the first mortgage holder. They offered to sell me the second mortage for around $30,000. This sounded like a good deal. However, I did not "snatch it up" because I did not have time to consult my attorney since there was only about 18 hours till the foreclosure sale.
Is buying a second mortgage for a discount rate a "good deal" when there is significant equity in the property?
Thanks for your thoughts.