11.29.07
Short sales, a solution for distressed homeowners with no equity
As promised here is a bit more on short sales.
I want to do a brief overview on what they are. This is not by any means a complete writeup. If you are a homeowner that is in over their head, has no equity and are looking for a way to avoid foreclosure, you might want to consider a short sale. A short sale will affect your credit negatively .. but it won’t be as bad as having a foreclosure on your record.
A short sale is when the bank agrees to take less than what is owed on the property. Often it is substainly less. The bank is motivated to get rid of properties it has to foreclose on. Instead of having as a performing asset with a nice little income, it is costing them in money in holding costs. Also having them on the books hurts the banks ability to make new loans. But even with this reality, banks are not very welcoming to people who want to do a short sale.
There are very specific negotiation techniques that are needed to make the short sale happen and if you are not in the short sale business it’s best to find someone who has done them successfully.
Realtors don’t always understand what a short sale is. Some think it is just listing the house for less than the market value or less than what is on the loan. If you are talking to a realtor, make sure they can clearly can tell you what they intend to provide to you. Most people who do short sales are real estate investors not realtors, and they won’t talk to you if you have signed a listing agreement.
The real estate investor who does short sales will not charge you anything for the service. In fact if anyone asks you to pay money for a short sale service, run, don’t walk in the other direction. The investor makes money on the “spread”, the amount that they negogiate the bank down to and what they can sell the house for. The art of short sales is convincing the bank the property is really worth lot less than the market value and showing the bank they will actually come ahead if they don’t have go through the foreclosure process and have all those holding costs.
Good luck, for anyone who needs to sell, it’s a brutal market out there.
11.04.07
Cashflow night at the National Wealth Network meeting
Last night I drove to the other side of the Bay to participate in a Real Estate Club’s (National Wealth Network) CashFlow game night. The only people I knew there were the organizers so I ended up sitting at a table with a bunch of folks I didn’t know.
Just in case you are not familar with Rich Dad’s CashFlow game read through this quick review.
I was the first person out of the rat race in the room (there were about 15 or 20 games going on at the same time). My table allowed me to pick my profession, so I picked “Janitor” for the ultra low expenses. A couple of lucky turns of the cards and presto I was out of the rat race with $1010 of passive income. If only my income needs were that low.
My strategy was actually pretty conversative I didn’t borrow a lot, and I only took the negative cash flow risk when I had some property I could sell (however taking that risk did accelerated my exit from the rat race). In contrast, Chad (not his real name) at the game next door, borrowed $300K up front and went for every big deal he could. He wasn’t too far behind me in getting out of the rat race and he had a lot more passive income and a bigger portfolio.
I did learn one thing new about the game. What I learned was that my strategy was fine for getting out of the rat race .. but it hampered me on the the Fast Track. I’ve played Cashflow before, but it was several years ago with perhaps less sophisticated players. At that time, we didn’t spend much time on the Fast Track because getting out the rat race was such an achievement. But having a bigger passive income before entering the Fast Track would have allowed me to play a bigger game on the Fast Track.
However truthfully, what was more interesting for me (than playing the game) was chatting with my table mates Everyone at the table but me was an active real estate investor .. mostly working short sales. Here in California, the homeowners that are getting in trouble don’t have any equity so a short sale is really the only viable strategy.
More on short sales and my table mates on the next post.
