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Are short sales a gold mine or a rabbit hole for flipping?

Flipping short sales is being sold as an investor gold mine, but is it as easy as it sounds? Let’s discuss.

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Is Flipping Properties Still a Moneymaking Enterprise?

I received a call a few weeks ago from a long lost friend on the east cost; she had taken a weekend long real estate course and was now ready to invest her entire life savings flipping property. That is, she learned in the class that you could buy all sorts of foreclosed properties in California, rehab them, and make boatloads of money in the process.

While it’s true that investor flips are alive and well in certain parts of the United States, purchasing a short sale in order to rehab and sell it again is not always as easy as it seems.

Purchasing a Short Sale to Flip

Here are three things that you need to be prepared for if you plan to purchase a short sale as a flip:

  1. No Repairs Paid by the Short Sale Lender. When purchasing a short sale, the short sale lender likes to sell the property as-is. That is, the lenders generally do not like to credit any money for required repairs, such as a new roof or septic troubles. And, often times, they will not agree to reduce the property below market value in order to address major defects to the property. It’s unfortunate to make an offer on a property only to learn months down the road that the seller’s lender has not agreed to your terms.
  2. Short Sale Addenda May Restrict Resale. Many short sale lenders have affidavits with specific guidelines for short sale approval. These affidavits or addenda require the signatures of both buyers and sellers, and often restrict the time periods for when the buyer is permitted to resell the property. So, if an investor buyer purchases a flip, he (or she) may be required to hold the property for 90 days or more—thus impacting the investor buyer’s financial bottom line.
  3. Terms Not Ratified by Lender. One of the biggest frustrations with short sales is the unknown. The listing agent and seller list the property and obtain an offer, which may (or may not) be ratified by the short sale lender. The short sale lender may not agree to many of the terms and conditions of the offer. And, for investor buyers, each change to the offer can impact the buyer’s financial bottom line. Investor buyers of short sales need to be prepared for the long wait time and the “no” that may come at the end of that long wait. If you can handle that, you may be in for a few good deals.

Short sales are often a great buy. They’re frequently in better condition then bank-owned or otherwise abandoned property because the seller generally resides in many of these properties all the way through to the closing day. That being said, investor buyers that plan to purchase and resell in order to make big bucks may be in for a rude awakening.

The process is not as easy and fruitful as it may seem; the days of purchases at 50 cents on the dollar are likely a thing of the past.

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

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2 Comments

2 Comments

  1. Garrett Nelson

    August 6, 2013 at 1:06 pm

    I’m not exactly sure what this article is about. First you say that your friend took a class about how they could buy foreclosed properties in California and flip them and make a lot of money, but then you talk exclusively about short sales. When looking for a home to flip I don’t think it matters if it’s a Short Sale, or foreclosed home, etc. What matters is that you’re able to buy it at the right price and know that you’ll be able to resell it for X once you invest some into it. When trying to resell anything for profit, it all comes down to the price you can buy it at, not the end price. And the Status of the home doesn’t automatically mean it will be a good deal and sell at a low price. Banks want to get the most money possible out of property, so the don’t sell them at a super discounted rate just because they’re a Short Sale.

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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