Short Sales, Reos Or Motivated Sellers - Which Is The Best Real Estate Investing Model?
In a real estate market with so many deals lying on the market, most real estate investors get confused where to get the best investment deals.
Do you get foreclosed REOs from the bank? Should you do short sales to get a discount on the mrotgage from the bank? Or should you buy directly from the motivated sellers?
This article sheds some light into these 3 situations.
Each method has its good and bad sides; let's look at each one:
1) Buying bank foreclosed REOs
Banks have too many foreclosed properties and they increase in number every day. As soon as they acquire them, they then try to sell them quickly.
Buyers are few and these properties can take a long time to sell.
Banks are therefore willing to sell them less than their market value, even more so if they need repairs.
Real estate investors should shop carefully because not all of them are profitable.
2)Short Sales
Banks foreclose on houses where the mortgage is in default. Before they foreclose, they are often willing to take less than the mortgage balance. This is called a short sale.
First a bank has to do an appraisal to find out the true market value. Then they can give you a discount on the mortgage based on their numbers.
A bank that holds a first mortgage is likely to offer very little discount on the mortgage, usually not more than 20% especially if it does not need major repairs.
A bank that holds a second mortgage can lose 100% of their investment in a foreclosure, so they are more willing to negotiate much lower. It is not unusual to get 80-90% discount on a second mortgage.
It therefore makes a lot of sense to do a short sale on a property with more than one mortgage.
Short sales can take 4-6 months. You must therefore have enough patience and capital to last you through such long waiting periods.
Banks can reject your short sale application even when all numbers look good. Be prepared for rejection.
If your short sale is approved, you must close fast. Banks will not accept creative financing on short sales.
When all is said and done, you can create a lot of equity and profits as long as you select the right deals, have patience to wait for a long time, can take rejection, and you can close fast.
3)Motivated sellers
You can employ a wide variety of techniques to buy houses from motivated sellers.
This includes creative financing.
If the mortgage balance allows, you can also negotiate with flexibility directly with the motivated seller. And you can be as flexible as you need when closing, e.g. you can wholesale a deal right from a motivated seller to a wholesale buyer.
This is always the best way to buy investment houses as long as you can target people in need of selling their houses.
In a market full of deals in default on their mortgage, whether you buy houses, sell houses or even wholesale them, you can close a lot of deals more efficiently using a real estate investor website for wholesaling houses that also build your buyers list automatically. Learn more from http://www.realestateinvestorswebsites.net/website-types/wholesaling-houses.php
Do you get foreclosed REOs from the bank? Should you do short sales to get a discount on the mrotgage from the bank? Or should you buy directly from the motivated sellers?
This article sheds some light into these 3 situations.
Each method has its good and bad sides; let's look at each one:
1) Buying bank foreclosed REOs
Banks have too many foreclosed properties and they increase in number every day. As soon as they acquire them, they then try to sell them quickly.
Buyers are few and these properties can take a long time to sell.
Banks are therefore willing to sell them less than their market value, even more so if they need repairs.
Real estate investors should shop carefully because not all of them are profitable.
2)Short Sales
Banks foreclose on houses where the mortgage is in default. Before they foreclose, they are often willing to take less than the mortgage balance. This is called a short sale.
First a bank has to do an appraisal to find out the true market value. Then they can give you a discount on the mortgage based on their numbers.
A bank that holds a first mortgage is likely to offer very little discount on the mortgage, usually not more than 20% especially if it does not need major repairs.
A bank that holds a second mortgage can lose 100% of their investment in a foreclosure, so they are more willing to negotiate much lower. It is not unusual to get 80-90% discount on a second mortgage.
It therefore makes a lot of sense to do a short sale on a property with more than one mortgage.
Short sales can take 4-6 months. You must therefore have enough patience and capital to last you through such long waiting periods.
Banks can reject your short sale application even when all numbers look good. Be prepared for rejection.
If your short sale is approved, you must close fast. Banks will not accept creative financing on short sales.
When all is said and done, you can create a lot of equity and profits as long as you select the right deals, have patience to wait for a long time, can take rejection, and you can close fast.
3)Motivated sellers
You can employ a wide variety of techniques to buy houses from motivated sellers.
This includes creative financing.
If the mortgage balance allows, you can also negotiate with flexibility directly with the motivated seller. And you can be as flexible as you need when closing, e.g. you can wholesale a deal right from a motivated seller to a wholesale buyer.
This is always the best way to buy investment houses as long as you can target people in need of selling their houses.
In a market full of deals in default on their mortgage, whether you buy houses, sell houses or even wholesale them, you can close a lot of deals more efficiently using a real estate investor website for wholesaling houses that also build your buyers list automatically. Learn more from http://www.realestateinvestorswebsites.net/website-types/wholesaling-houses.php
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How Distressed Home Sales Impact Your Home's Value
We know the gut wrenching feeling when a home sells down the street from you for well below Fair Market Value (FMV). You may only find out when a perspective buyer says your home is too high priced because of that distressed home sale! Distressed home sales happen in any and every neighborhood from ghettos to multi-million dollar estate neighborhoods.
What is considered a distressed home? We usually think of distressed property as one with plywood over the windows and doors, perhaps inhabited by vagrants or drug dealers. In fact, most distressed sales are generally in no worse shape than the other homes in the neighborhood. So, a distressed home sale should be considered any property that sells enough below Fair Market Value (FMV) that it impacts the value of the surrounding houses.
From our experience, we believe that any property that trades at 20% or more below the “Median Home Value” will affect appraisal values throughout the neighborhood. This is especially true if there has been a second distressed sale within six months. What begins to happen is these distressed sales become new comparable sales and start impacting local homes on the market. These distressed sales force homeowners to reduce their prices and a domino effect of declining prices can begin to take place. Many other aspects of a home sell it besides price alone, but many sellers don't realize this.
One of the most common causes of a distressed sale is neglect of the property, especially where residents may be physically or financially unable to care for their property. The only chance for change for these homeowners may be to wait until they move, or sell your house before theirs comes on the market where it will be sold as a distressed property. This distressed sale again causes a decline in your home's value and neighborhood values in general.
Other common causes of distressed sales are foreclosure and divorce. In foreclosure, the property may be sold well below fair market value because the homeowner no longer cares what happens to the property and the lender gets it back through the foreclosure system. To avoid losing his home and having the foreclosure on his credit report, he may sell his home for what is owed, which can be 80% or less of last year's market value. In divorce situations, common sense can go out the window when one or both spouses wants out of the relationship, without caring about selling their home for the best possible price.
Not as common are special inter-family sales that take place below fair market value for of personal reasons. Probate or estate sales often take place below FMV because the beneficiaries only want to get out of the property and into cash as quickly as possible. We detail these problems and other reasons for distressed home sales with specific solutions in our Home Study Course for home sellers.
There is some consolation is the fact that the distressed sale is only looked at by appraisers for about six months after it becomes public record. This time period was previously as much as one year but has recently been shortened by lenders because of the declining real estate market.
If you are selling your home, you want your appraiser to do a “full appraisal” which includes coming inside your property and giving you credit for the condition of your home and any improvements you made. Otherwise, if he simply does what is called a “drive-by appraisal” he must use only the information that is in the public record. With a “full appraisal” you will more importantly have the opportunity to talk with him about the reason for the distressed sale in your neighborhood so he can discount it entirely. A distressed home sale in your neighborhood can decrease the FMV of your property by as much as 10% to 15%.
In summary, your best option to overcome distressed home sales in your neighborhood is to be alert to their potentially happening and see if you can get involved with your neighbors to help the homeowners before the sale. If this is not an option, and you sell your home and get an appraisal below what you feel is FMV, look at the appraisal specifically for the home or homes that brought down your property value, and challenge the appraisal. If you see a comparable sale or two that are way out of line with others in your neighborhood, talk to neighbors about what happened and relate this information to the appraiser so he can redo his report. Being proactive like this could save you tens of thousands of dollars by not having to reduce your selling price or having to give unnecessary seller concessions.
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