A property needs a short sale when it is worth less then what is owed on the property. Simply said, if a property is worth 200k but the mortgage on it is 400k there are only 2 ways for the homeowner to sell their house.
The first way is for the homeowner to bring 200k to the table to sell the house for 200k, so that way they cover the difference in what is owed to the bank. This is usually very unlikely because homeowners don’t have that kind of money to lose. This being so the second way is what is usually done.
The second way to handle this sale is to do what is called a short sale. A short sale is when an attorney, realtor, or negotiator gets involved and talks to the bank and gets the bank to discount the money owed to them from 400k to 200k. Now this sounds great and all but why in the world would a bank do this?
Typically people that need a short sale done are also behind on payments. This being so the homeowners are losing their house and the banks would rather sell the house an cut their loses as long as they get to sell the house at the price they want.
So what is this so called price they want and how do they determine it? When you submit a offer to buy a short sale deal and once the banks received everything they need from the seller and the buyer, the bank would then order what is called a BPO or Apprsial. This is orderd so they could figure out what the house is worth. << This appraisal is where all the magic happens. Simply said… IF the apprasial comes out to be 100k, the bank wants 100k, if it comes out to be 150k, the bank wants 150k. <The magic of the short sale is not in knowing the negotiator or having a special attorney or person working on your deal. The magic of a short sale is all in the bank’s appraisal/bpo.
So if you want to submit a low offer great… Get the bank BPO/APprasial to come in low as well and BAM you get an instant approval! Think about it.. .the apprasial is the banks eyes and ears.. If it comes in below what you offer don’t you think the bank would give you an instant approval???
Your now asking me but I don’t want the approval to be base on the appraisal. Well reality is you do. What you need to realize is that FMV is fair market value. Say the fair market value is 200k.. and the bank appraisal came out to be 100k.. you’ll get your 100k offer approved instantly. So the question is more.. how do you get the bank appraisal to come in lower then FMV or better yet as far as possible from ARV.
Want to know more on how to get this appraisal to come in low.. get the 101 Pre-Foreclosure video. << In this video I also talk about how to flip short sales..
Want to find motivated sellers? Here are some awesome list to do marketing to and where to find them.
Pre-Foreclosure / Lis Pendens / Notice of Default
Whenea homeowner is behind on payments by at least 3 months, the bank has the right to file a lawsuit on the homeowner to initiate what is called foreclosure. This notice is filed to let the world know the bank is in the process of foreclosing on a property. This notice that is record is called a Lis pendens or a Notice of Default.. This being so, marketing to this list is great if you are after people that just received a foreclosure notice.
If you want to get access to this list you have to pay for it. You can get it through listsource.com
Homeowners that have already received a lis penden filing on their house and is about to now lose their house to the sheriff sale are usually either super motivated to work things out or are totally crazy. In any case, this is one of the best list to hit up if you are after motivated sellers.
To get this list you simply have to go to google and type in “your county sheriff sale”. So for me, if i’m after the list of sheriff sale properties going up to sale in middle sex county nj, i simply go to google and type in Middlesex County NJ sheriff sale list and the list would come up. Typically this list is for free and is on the local sheriff sale website.
Tax Lien Sale
Homeowners who have their property paid off or they just forget to pay their taxes or have passed away and don’t pay their taxes usually get their property tax lien sold off at the local township auction. You simply just have to again go to google and type in the township of interest and the words tax lien certificate sale and the list would come up.
Vacant & Abandon Property List
To get the list of abandon properties you just have to again type in the township with the words abandon property list and it would come up.
Absentee Owners & High Equity list can be bought through listsource.com
I use banditsigns.com to get my signs.
You can go to signstaplers.com to get a bandit sign stapler.
This is one of the most popular list to go after. Will write more on it later
Like the reading? Want to learn how to do marketing to this list for wholesale deals? Buy the 101 wholesale video. The marketing tip alone in it will pay for the cost of investment.
Find out who owns the house
You just need to google your county public records database. Below is for NY, NJ, and Philadelphia.
This is a tool used to find people’s phone numbers. All you need is their property address, first and last name and you should be good to search.
To start hard money lenders always lend base on what is called AFTER REPAIR VALUE.. aka ARV. What does that mean? It means they lend base on what the property will be worth once it is fixed up vs. conventional lenders that lend base on what it is right now. This being so, if you are in the business of fixing properties you need to work with hard money lenders as they are some of the best private lenders out there.
To get started get on google and find a local hard money lender. The more local the lender is to where you do business the better as they are more familiar with your buying area.
Cost of Capital
From there give them a call and ask them what is the points and cost to borrow for 12 months. They will typically say 2 points and 12% depending where you are in the country.
What 2 points mean is, whatever amount you borrow you need to pay them 2% to take that money.
As for the 12%, that is interest for the money over a period of 1 year. So if you only borrowed 100k for 6 months, that means you pay 6k worth of interest.
So for example say we called a lender and they said the points is 4 points and 14% interest a year. Say your borrowing 100k, that means on the day you get the loan you need to pay them 4% of 100k which is 4k to get the money.
As for the 14% interest, you need to multiply 100k x .14 = 14k / 12 months = 1.167k a month. That means if you take 9 months to flip the property you need to pay your hard money lender 9 x 1.167k = 10.5k.
Along with the above ask your potential lender what is the application fee and what is the review process like to set yourself up for financing. Typically hard money lenders will charge you $200 to $400 to review you as a prospective borrower. They will ask you for permission to pull your credit. Along with that they will ask you for the following
2 Year Tax Returns
2 Year W2
2 Months of pay-stubs
Scope of Work
A scope of work is the breakdown of all the improvements you plan to do to the property. Item per item, cost for each item written up by a contractor you plan to hire to do the job. The hard money lender will need this to review the projected rehab.
On the day of the appraisal you should send the appraiser your scope of work that way they know what improvements you will be doing to the property to give the lender the highest possible ARV for the property. SO the more clear your scope of work is… the higher your ARV can potentially be.
Not only will you be paying for your attorney to represent you on the closing, you will also be paying for the lenders attorney. So make sure to ask them what that cost is anticipated to be.
Some local lenders
More to come…
Secret to every hard money lender…
Whatever your real estate goals are, you lack a resource to achieve it or else it would have been accomplished already. To me this resource is always at a networking event. You just have to know that it is there and what it looks like.
1. The many people I meet at networking events.
I often meet people that attend networking events to network. I always ask these people what does that mean? They tell me its to meet like minded people and I say got it. 🙂 To me that isn’t good enough. Beyond meeting like minded people the number one reason why you should attend a networking event is because you lack a resource that can be found at the event. This resource I am talking about can be an investment opportunity, capital to invest, time to do the business, or expert knowledge to get it all done.
Yes.. Thats right. That is exactly how I look at people I meet at the events. So start looking at everybody as a resource and team up with the people that has what you need. If you need money meet someone that has money. If you lack knowledge meet someone that has knowledge.. You get the idea
List resources you lack:
Along with looking for resources you lack at the event you must also provide a resource in exchange. What resource can you provide in exchange? Can you sum it up into one or two words?:
List resources you can provide in exchange:
Once you finish the above point, you have completed a huge step to networking correctly. I know it was a very simple concept but this concept alone will change the way you network forever.
2. What to write on your name tag
At the event write your name and the resource you can provide under it. That way when people come to talk to you they know what you can provide in exchange. If you are a newbie you still need to bring something to the table. If you are a newbie with money write that. If you are a newbie with a lot of time on your hand write that.
3. How to Network for Maximum Return
Once your name tag is filled out you must start networking. That means you need to talk to people. Go up to people and introduce yourself and ask them what they do? From there ask them what they are looking to accomplish by attending today’s event? Listen to what they say and see if they fit your needs (the resource you lack).
Say you were looking for a money partner. Person you are talking to says, I’m looking for deals to buy. Ask them what is the price range? All cash or hard money purchase? Do you see how this person can be a potential money partner? If you don’t get it read this blog on how to see what you aren’t seeing.
If they fit your need tell them that you be a great fit to work together. If not tell them what you can provide and are looking for by attending today. From there, tell them that you will keep an eye out for their interest with people you talk to and that you would appreciate it if they did the same for you by sending them your way.
4. How the money is made
If the person i’m talking to does connect with me on a resource I lack, I make it a rule to not break apart until we clearly know exactly how we will work together. Meaning if i’m looking for capital investors, before splitting up to talk to other people, we will roughly speak about potential investment capital size, ROI/splits and each other’s business responsibilities in the potential venture… << I call this the no follow up phone call networking rule.. What I mean by that is.. Why not get everything done now and save the phone call for something else? The follow up should really be to verify what was discussed. Or to look at potential deals not to start the conversation.
5. How to verify the people you want to work with are capable people in their field?
Once you meet everyone you need to meet, you now must verify the people you met are actually capable people. If you met a potential money partner ask them to send you a pof. If you met a wholesaler ask them to send you some deals and send it over to a hard money bank for funding. If they won’t fund it, then it’s not a good deal. If you met a contractor ask them if anyone else here has worked with them before and if so can you introduce me? If you met an expert ask the event host if they know about them?
In the end, we are all here to help you succeed and that my friend is how it is all done. It is very simple.. But let me tell you that not many people realize these things and because of that they don’t appreciate networking events. As for me.. Whenever I need money, deals, additional staff, contractors or anything related to the real estate business i know exactly where I need to go which is why we do so many of them.
To your continued success,
The MLS (Multi Listing Service) contract is the sales contract used by real estate sales agents. This being so a ton of money has been spent in making it perfect to serve the agents that use them. Whenever you do business in a state where an attorney is involved in the closing of a deal, the attorney always bark at every sale contracted presented to them other then the MLS sales contract. Not that other sales contract aren’t relevant, its just the attorney always bring up points with the contract so that an entire new contract is written up. To avoid this time lag and terms you want to get across, I use the MLS sales contract to do all my business.
Nick what about the loop wholes and all the escape clause in these special contracts? If you have to many escape clauses in a contract typically by the time it gets to an attorney, he/she will see this and throw it right out. Simply said, to go under contract with a seller you need to be aware of how to confirm to what is normal to the real estate society. So stop using these special sale contracts and fancy escape clauses because they really aren’t real. Sure you can get away with it in states where attorneys are not involved in the sale but it doesn’t mean you are a true investor. True investors understand how to work in any environment, attorney involved or not. Point is… its not that difficult to begin with so why not right?
– Want to know all the escape clasues I have in my contracts?
– Want to learn how to make MLS contracts assignable?
When a homeowner is behind on payments, the bank goes through a process called foreclosure to repose the house. In order to even start foreclosure the homeowner must be behind for at least 3 months. Once that is done the bank hires an attorney and files for what is called a notice of default or lis pendens to let the world know the bank is foreclosing on the property.
Being that this is public information, you can go to the court house and look for all the lis pendens filed in town or look for a company that gathers this for you and buy the list from them. In essence, anyone and everyone that has a lis penden filed on their property is going through foreclosure and because of this they are potentially motivated sellers.
Though getting the lis penden list and marketing to them to find motivated sellers is great, i also found that properties about to hit the sheriff sale is even better. Point here is, just because you are in foreclosure doesn’t mean you want to sell. As for properties that are about to hit the sheriff sale, this is now the end of the rope. You can sell and make a profit or you can lose out.
This being so i also target people that have their house listed on the sheriff sales. To get the sheriff sale list it is free and even easier. You simply go on google and type in your county sheriff sale and a sheriff sale website should come up with a list of all the properties going to sheriff sale.
From there identify properties going to sell about 1 or 2 month from today that way you have plenty of time to do marketing to them, try to cut a deal and move the property. Simply understand that the judgement amounts can be at times over the fair market value of the property. This being so you would have to do a short sale to make equity, and yes you can do a short sale within a few weeks. Its just no one knows that because they all are doing it wrong. For more information on how to invest in sheriff sales and how to do short sales fast get my 101 video on pre-foreclosure investing
To your continued success,
The mls stands for multi listing service. It is a system that sales agents use to post up properties and sell through other agents that have access to the system. This system is very valuable to investors as it is a great place for inventory as Realtors run into a lot of opportunities and post them on there.
It is said that there is no good deals on the MLS. This is 100% incorrect. What is true is that there are good deals on the mls, its just they move so quick by the time you see it, it is already under contract. So lets say you find a deal to flip on the mls, how would you go putting it under contract?
First of all, when you go after deals on the mls you need a Realtor to represent you. Typically your Realtor will require you to give him/her a check for $1k or more as what is called earnest money. This money is the same as the $1 consideration you must give the homeowner when putting a house under contract. It is just, with Realtors they have a higher expectation on what that number is and because of that they ask for more. Note that there is no law saying that the number has to be $1k. In essence it can be $1 to $1m. Its just Realtors don’t take you seriously as a potential buyer if he earnest money amount is not reasonable to them.
This being said, if you just came back from some real estate investor training and you tell a Realtor you want to put houses under contract with $1 they will not want to work with you. My point here is Realtors actually hate working with investors. Especially newbies… people that never flipped before or have the money to buy at worst case. This being so you must work in every way to not fall victim to that image. As soon as you do that agent won’t work with you anymore.
With that said, know who you can do the $1 consideration with and who you can’t. Homeowners that you meet yourself don’t have a standard expectation of what to expect as earnest money and because of that $1 is fine with them. When working with Realtors, in their world they are accustome to $500, $1000, $5000, $10000…. Simply ask them what they expect of you to put down as earnest money and match their expectation to move forward.
Once you submit your offer, send over the earnest money check to your agent and get a contract back from the sellers agent you now officially have the deal under contract. If you plan to flip the property by selling the llc, make sure to read my how to on it. Other then that you are all set to go and flip the property.
Like my write up? Want to learn more on how to wholesale houses? I invite you to look into my how to wholesale for quick cash training video. As always, if you didn’t learn anything from the video just email us and we will gladly refund you 100% of your money.
To your continue success,
Say you met a homeowner who is selling their house. Typically when you go under contract with the homeowner, they understand that a sale price must be agreed upon and a down payment amount will be brought to the table to close. As a rule, you never ever give down payment money to the seller. If you do, you will most likely lose it. This being so we always give down payment money to our attorney or title company handling the sale.
On the day the contract is being drafted up, at the homeowners house, attorney office or title company, you don’t give anyone any down payment money. You aren’t suppose to put down any down payment money until you are out of attorney review and out of your x day window of inspection. That means you have have time to find a buyer or cancel the contract.
You just got to make sure to write up the paperwork with the seller saying your buying the property for $500k and how much you will put down after x day of due diligence. Typically I put “I will put 20% down after 30 days of inspections/due diligence.” << This is very standard in the industry. This being said, in essence you don’t even need the $1 to put a property under contract.
So why is the $1 even needed? Some states require an actual consideration to be conveyed this being so I use $1. Whenever I have to do the $1 consideration with the seller, what i typically do is sayd say, to make this “contract legal and binding I have to give you some sort of consideration, here is $1.” Once this dollar is exchange and the contract is sign, i now have control of the property. That means if I put the property under contract as an llc, I can now sell the llc. If we signed a contract that was from the beginning assignable I can now assign it.
Note, this $1 earnest money strategy does not work with deals on the MLS. The reason for that is because Realtors expect $500 to $5k as earnest money to put a property under contract. Read how to flip houses on the MLS to learn more.
Like my write up? Want to learn more on how to wholesale houses? I invite you to look into my Wholesaling for Quick Cash training video. Go to the link and scroll to the middle of the page for a 20 minute segment of the video.
*This is not being promoted as legal advice. Please speak with your attorney before doing any of the above.