Short Sale Flips and The Simultaneous Close
| | Wednesday, November 24, 2004 @ 02:00 PM EST
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Contributed by: Dave Hayes
Dave Hayes Properties
Read more archived articles about Short Selling
If you are a short sale investor, and you have an accepted short sale proposal from a bank, and you have appropriate margins between the buy price to the seller whose loan you got discounted and the sell price to the end buyer, based on as is appraised value of the property, there is a powerful tool available to you so you can flip properties quickly and ethically, while controlling your exit, and profit handsomely with more velocity.
By selling with owner financing, you can accept as little as 5% down, and sell that unseasoned first lien at close for a cash lump sum, and avoid title seasoning issues, bank delays, and other problems that may come up with a bank. If you are a short sale investor, and you have
an accepted short sale proposal from a bank, and you have appropriate margins between the buy price to the seller whose loan you got discounted and the sell price to the end buyer, based on as is appraised value of the property, there is a powerful tool available to you so you can flip properties quickly and ethically, while controlling your exit, and profit handsomely with more velocity.
By selling with owner financing, you can accept as little as 5% down, and sell that unseasoned first lien at close for a cash lump sum, and avoid title seasoning issues, bank delays, and other problems that may come up with a bank seeing that you just got on title yesterday. There are note buyers that are veterans that are not concerned with whether you have had title for one day or one year when it comes to unseasoned note purchases (aka simultaneous close).
Pricing usually comes in around 80-90 cents on the dollar on the purchase of the first lien, and you get to keep the down payment, plus the first month's mortgage payment, resulting in gross cash proceeds paid to you before escrow closes.
Please note: this type of program does work for rehab deals as well, but pricing and end buyer terms are more advantageous to rehabber
Property must be a cosmetic type of fixup (or better) on up to good condition, and investor must be willing to pay to produce a good condition property PRIOR to appraisal, so that there spread is maximized.
EXAMPLE:
Amount owed on existing loan: $110,000
Short sale proposal accepted: $90,000 payoff (buy price)
Cosmetic work (paint, landscaping): $3,000
Appraised value after work done: $140,000 (sell price)
Sell with owner financing, 5% down: $7,000
Remaining first lien to sell at close: $133,000
Purchase price of unseasoned note: $110,390
1st mortgage payment at close: $1,060
Total cash proceeds at close: $118,450
Total profit in this example: $25,450
(applicable closing costs would be taken out of this amount, depending on your area, customs, & contract)
Clearly, if there are other factors unique to your deal, like paying for first, last and security for new rental quarters for the sellers who moved out of the house, or other considerations, the numbers can be adjusted accordingly, but this provides an idea of how this works.
When you do flips properly, you avoid an increasing trend of banks killing deals where the investor is trying to insert themselves in the deal temporarily via double close or assignment, or playing with corporate and legal entities, and you can turnaround the next day and sell with owner financing, because you have the deed, and that transaction is complete and whole unto itself. You then open up another profit center for you, and potentially your cash partners as well, depending on how your are purchasing your deals on which you have worked hard to get your short sale proposal accepted.
Happy Investing!
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