3 Things You Must Factor In If You Want To Flip Short Sale Properties
Short sale flipping is an extremely popular and effective way to invest in real estate in the short term in today’s market. However, there are some pitfalls in being involved in this type of real estate investing, and you must be aware of the legal issues and legislative regulations that are in place and are being put into place to deal with this relatively new real estate investing strategy.
Of course, short sales are nothing new. However, in the volume and scale that they are currently being performed, they are garnering attention from various legislative bodies and regulatory committees. Now, to some extent, that is fine. I have no problem with responsible public officials working to protect everyone involved in real estate transactions. However, if you, as a real estate investor, are not aware of the local regulations governing short sales in a region where you do this type of investing, you can find yourself stuck with a property for months – or even years – if you lose your buyer in the process of adhering to these codes. Here are 3 things that you must know and factor in when you are flipping short sale properties:
• Will you have to season the property?
In some states, you must hold a short sale property for a period of time before you can sell it. While waiting a month may not be a big problem, in some areas the span of time is effectively over 6 months. This can easily destroy a deal, and makes “flipping” in the traditional sense nearly impossible.
• Should you put your name on that contract?
Many investors get around the seasoning issue by signing a separate payment contract with the end-buyer, and then conduct the short sale on behalf of the buyer. Make sure that you have good legal counsel that will let you know exactly where you can and cannot put your “John Hancock” and still have the short sale proceed as planned.
• Is your end-goal for the property legal?
Of course, you are not in real estate investing to break the law. However, in some areas, there are very stringent rules governing to whom you can sell a short sale property. In many cases, this is to try and prevent investors from buying up properties cheaply. Fair? Absolutely not, and frankly it’s pretty bad business for the locale. However, you do not want to end up with a property that you did not want on your hands for months or years because the person you had lined up to buy it does not meet the qualifications. So make sure that not only is the actual transaction in order, but that you will not be violating any legislation when you pass the property on.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com.
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Historically, simultaneous closings were a great way for real estate investors, buyers and sellers to all get their “piece of the pie” very quickly in a real estate flip. Simultaneous closings occur when a seller signs a contract selling the property to a real estate investor. This contract is put into the hands of a closing attorney. At the same time, the investor signs a contract selling the property to a third party buyer, contingent on that buyer’s ability to fund the transaction.
Now that you understand how transactional funding works, it probably has taken a pretty big load off your mind. Turns out, despite the new laws that require your name to be on the deed of a property that you sell, you can still get funding that is not a risk to you or the lender without having to have perfect credit and a huge down payment on the property.
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Whether you have done short sales in the past, or you have educated yourself about these transactions, you are probably fairly familiar with the basic function of the real estate deal. Essentially, the owner of the home gives a third party the right to the deed of the home and to negotiate with the bank for a discounted price on the home in exchange for avoiding a foreclosure.
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