Wholesale Real Estate - Gotta Love It!
As many of you know, we seasoned investors have witnessed firsthand the tightening REO markets and general inventory.
This inventory started drying up in late September when it was uncovered that Banks were trying to create a false reality on real estate by leaving the assets overpriced on the markets for an extended time, thus using other recent REO comps to support their higher asking price values thus taking advantage and creating false equity in the home based on other recent REO comps! The banks were creating the illusion that they were oh so willing to deal on these properties.
NOT SO FAST! Seasoned Investors caught on really quickly, however even though the subject property appeared to be "on-sale" because the assessed value and the comps in the area showed strength recent foreclosures), the property was clearly over priced, and when the next wave of ARMs dropped triggering the next wave of 90 day NOD's...
poof..
..
over supply, now all literally overnight perceived equity at the time, vanished..
..
AGAIN! In using the analogy that my other half likes to use...
"30 years old is the new 18", take a moment and picture this...
The real estate markets are a giant see-saw, it appears that when the REO inventory is flush then the short sales are lagging, and vice versa.
Buying a home traditionally from a seller that actually owns the property is the old 30, whereas buying a short or an REO is the new 18! It's a fad folks, it really is, its brilliant marketing by the Gurus as well as NAR.
(National Association of Realtors) The General Public again is being so misled by the "Gurus" of real estate and all of the auction commercials that are on TV late night.
They are promising great deals on REO's, Great deals on shorts the whole nine yards.
This is cataclysmically wrong! The REO inventory is "AS IS-WHERE IS', and the Short Sale is "AS IS WHERE IS", what in the heck makes the average Joe Q Public a solid enough investor to take on the assumption that an REO is a great deal.
Face it, most of the REO inventory is clearly less than acceptable for a new owner to move directly in, further...
I know most of the time when my firm purchases an REO it's in horrible condition, which would cause the banks to run for the hills and not even underwrite that loan unless there was a serious amount down, something like 50%, and even that is no guarantee! HELLO WHOLESALERS, the REO inventory is yours with the exception of the rare property as to where the owner was in the unit until the day it sold on the courthouse steps, in which the owner did not have a chance to leave it vacant for vandals, or even vandalize the property him or herself, which as you know is so common.
Look at the forgotten or ignored factor now coming in to play...
remember the see saw analogy...
let's look at the short sale for a moment.
The short sale! The folks are most likely still in the property, or its rented, and in the worst case scenario is, its vacant, the odds are that in the event it was a rental then there is some minor damage or "lipstick" issues, other than that, you would have a "loan able" property, meaning this would pass inspections and most likely could qualify for FHA.
This is a huge win for the person that gets this one.
However...
most investors including myself are numb on short sales, because it's working with the banks "anti-business" department.
They delay, lose papers, and worse, put you on perma hold! The Short Sale is and will be the next major wave, banks are organizing and purchasing automated software that allows an asset manager to triple up on case loads, thus yielding a faster response time for short approvals, however this automated system that the banks are beginning to use, removes the human element from the equation, and we all know that banks do not operate on the human level to begin with.
So what to do? Beat them at their own game! Use a negotiator with a very solid track record, and some serious time in the business, DO NOT USE A Real Estate agent whatsoever for the negotiating on any short, UNLESS the agent is an investor! Agents are quite a valuable resource when used properly; they are excellent sellers of property.
They are great contract negotiators, however when it comes to the math of a short sale, and the tradability of the spreads on a wholesale deal there is a giant wall, again unless the agent is an Investor.
Having said that...
I would have to wonder why you would be working with that agent if he or she is an investor? I look at a short sale no different than I would on a futures contract with a 60 day turn.
I am betting that in at least 60 days, the property that I decided to start negotiating on is going to have a tradable spread in 60 days, I can further guarantee that by doing the short negotiations in house, I will create a spread that will indeed create margin between the buy and the sell.
I know it's going to cost me a few thousand to negotiate, and to acquire financing, BUT I know that my costs incurred are going to be paid from the spread, because I know that my cost base is no more than 3000 on negotiations, and I will spend a few thousand on funding.
Scenario: The agent flicks you a new listing with the short package almost complete, just a few docs missing; you sign the purchase contract at the lowest legit comp price, and have the agent submit the package.
In 24 hours, your live with the asset manager, during the next couple of days you have interior video or photos shot of the subject property, and further you get ready to submit hard cold facts on the house that support your value, the bank receives its BPO value, and you start dancing, ultimately during this time your agent is taking back up offers on the property, and you are working through the short negotiations to ultimately wind up somewhere around 71-80% of BPO.
Let's say that you went high and you got it at 80 percent of BPO and the list price of the property was $699,000.
00, the BPO came it $625,000, and your agreement of the 80% BPO purchase price is $500,000, now you have created a spread! This case yields a large spread for instrumental purposes only, the average spread is only 20-22%, but none the less, while you were negotiating, your agent was showing the house, and taking backup offers all day long at 560,000 because the property was a mess, and she has two all cash offers at 525,000.
What do you do? You are closing on your deal at $500,000 and closing costs are split between you and the lender, now you are about to enter another escrow, which will close on or about the same time, do you take the best term cash offer at 525? Naw, counter him or her back the additional holding costs associated along with the commissions and expenses to date.
All your fees generated, your lender fees, and the new escrow fees, and commissions.
If the deal is sound the new investor is not going to get all emotional about the counter, and most of the time, considering it's a cash player looking at the house, they have underbid the price with a 6-9% cushion anyways.
In the event the investor balks at this one, then look at his or her counter closely, and split the difference as long as you have your base nut covered, which was anything that you have to pay for at the close of an escrow, you will be fine! Try to pinpoint a value on your time, as far as I go, I use a 3000 threshold plus all fees and expenses, this three thousand is to pay me personally for my time involved, this is outside of the short fees and lender fees.
One item that you must really pay attention to is title seasoning requirements, make sure you really investigate this well and complete, no sense in losing deals because in a lack of education.
Remember, if you are reading this article, then you read the headline, which was WHOLESALE REAL ESTATE, don't get caught up in the seasoned investor role, playing with fire using the agent that is supposed to negotiate on your behalf, because there is one thing I can really tell you, after the first 8 or 10 deals I fully recognized it, you will never know if that agent did his or her best during the negotiation time on the deal, however after you have either done it yourself, or had a seasoned negotiator do it for you, you find yourself resting better with it.
This inventory started drying up in late September when it was uncovered that Banks were trying to create a false reality on real estate by leaving the assets overpriced on the markets for an extended time, thus using other recent REO comps to support their higher asking price values thus taking advantage and creating false equity in the home based on other recent REO comps! The banks were creating the illusion that they were oh so willing to deal on these properties.
NOT SO FAST! Seasoned Investors caught on really quickly, however even though the subject property appeared to be "on-sale" because the assessed value and the comps in the area showed strength recent foreclosures), the property was clearly over priced, and when the next wave of ARMs dropped triggering the next wave of 90 day NOD's...
poof..
..
over supply, now all literally overnight perceived equity at the time, vanished..
..
AGAIN! In using the analogy that my other half likes to use...
"30 years old is the new 18", take a moment and picture this...
The real estate markets are a giant see-saw, it appears that when the REO inventory is flush then the short sales are lagging, and vice versa.
Buying a home traditionally from a seller that actually owns the property is the old 30, whereas buying a short or an REO is the new 18! It's a fad folks, it really is, its brilliant marketing by the Gurus as well as NAR.
(National Association of Realtors) The General Public again is being so misled by the "Gurus" of real estate and all of the auction commercials that are on TV late night.
They are promising great deals on REO's, Great deals on shorts the whole nine yards.
This is cataclysmically wrong! The REO inventory is "AS IS-WHERE IS', and the Short Sale is "AS IS WHERE IS", what in the heck makes the average Joe Q Public a solid enough investor to take on the assumption that an REO is a great deal.
Face it, most of the REO inventory is clearly less than acceptable for a new owner to move directly in, further...
I know most of the time when my firm purchases an REO it's in horrible condition, which would cause the banks to run for the hills and not even underwrite that loan unless there was a serious amount down, something like 50%, and even that is no guarantee! HELLO WHOLESALERS, the REO inventory is yours with the exception of the rare property as to where the owner was in the unit until the day it sold on the courthouse steps, in which the owner did not have a chance to leave it vacant for vandals, or even vandalize the property him or herself, which as you know is so common.
Look at the forgotten or ignored factor now coming in to play...
remember the see saw analogy...
let's look at the short sale for a moment.
The short sale! The folks are most likely still in the property, or its rented, and in the worst case scenario is, its vacant, the odds are that in the event it was a rental then there is some minor damage or "lipstick" issues, other than that, you would have a "loan able" property, meaning this would pass inspections and most likely could qualify for FHA.
This is a huge win for the person that gets this one.
However...
most investors including myself are numb on short sales, because it's working with the banks "anti-business" department.
They delay, lose papers, and worse, put you on perma hold! The Short Sale is and will be the next major wave, banks are organizing and purchasing automated software that allows an asset manager to triple up on case loads, thus yielding a faster response time for short approvals, however this automated system that the banks are beginning to use, removes the human element from the equation, and we all know that banks do not operate on the human level to begin with.
So what to do? Beat them at their own game! Use a negotiator with a very solid track record, and some serious time in the business, DO NOT USE A Real Estate agent whatsoever for the negotiating on any short, UNLESS the agent is an investor! Agents are quite a valuable resource when used properly; they are excellent sellers of property.
They are great contract negotiators, however when it comes to the math of a short sale, and the tradability of the spreads on a wholesale deal there is a giant wall, again unless the agent is an Investor.
Having said that...
I would have to wonder why you would be working with that agent if he or she is an investor? I look at a short sale no different than I would on a futures contract with a 60 day turn.
I am betting that in at least 60 days, the property that I decided to start negotiating on is going to have a tradable spread in 60 days, I can further guarantee that by doing the short negotiations in house, I will create a spread that will indeed create margin between the buy and the sell.
I know it's going to cost me a few thousand to negotiate, and to acquire financing, BUT I know that my costs incurred are going to be paid from the spread, because I know that my cost base is no more than 3000 on negotiations, and I will spend a few thousand on funding.
Scenario: The agent flicks you a new listing with the short package almost complete, just a few docs missing; you sign the purchase contract at the lowest legit comp price, and have the agent submit the package.
In 24 hours, your live with the asset manager, during the next couple of days you have interior video or photos shot of the subject property, and further you get ready to submit hard cold facts on the house that support your value, the bank receives its BPO value, and you start dancing, ultimately during this time your agent is taking back up offers on the property, and you are working through the short negotiations to ultimately wind up somewhere around 71-80% of BPO.
Let's say that you went high and you got it at 80 percent of BPO and the list price of the property was $699,000.
00, the BPO came it $625,000, and your agreement of the 80% BPO purchase price is $500,000, now you have created a spread! This case yields a large spread for instrumental purposes only, the average spread is only 20-22%, but none the less, while you were negotiating, your agent was showing the house, and taking backup offers all day long at 560,000 because the property was a mess, and she has two all cash offers at 525,000.
What do you do? You are closing on your deal at $500,000 and closing costs are split between you and the lender, now you are about to enter another escrow, which will close on or about the same time, do you take the best term cash offer at 525? Naw, counter him or her back the additional holding costs associated along with the commissions and expenses to date.
All your fees generated, your lender fees, and the new escrow fees, and commissions.
If the deal is sound the new investor is not going to get all emotional about the counter, and most of the time, considering it's a cash player looking at the house, they have underbid the price with a 6-9% cushion anyways.
In the event the investor balks at this one, then look at his or her counter closely, and split the difference as long as you have your base nut covered, which was anything that you have to pay for at the close of an escrow, you will be fine! Try to pinpoint a value on your time, as far as I go, I use a 3000 threshold plus all fees and expenses, this three thousand is to pay me personally for my time involved, this is outside of the short fees and lender fees.
One item that you must really pay attention to is title seasoning requirements, make sure you really investigate this well and complete, no sense in losing deals because in a lack of education.
Remember, if you are reading this article, then you read the headline, which was WHOLESALE REAL ESTATE, don't get caught up in the seasoned investor role, playing with fire using the agent that is supposed to negotiate on your behalf, because there is one thing I can really tell you, after the first 8 or 10 deals I fully recognized it, you will never know if that agent did his or her best during the negotiation time on the deal, however after you have either done it yourself, or had a seasoned negotiator do it for you, you find yourself resting better with it.
Source...