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Short Sales...The Worst Real Estate move an Investor can make...

By Joe Florentine

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Published: 02Sep2009
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Here are 5 good reasons to move away from residential short sales and prosper from the recession instead of being part of the mess.

1. Short sales usually don't close for investors... As an investor your goal is to purchase a property well below market value and step into a large equity position at closing. In a short sale scenario, as most of us know, the homeowner owes more than the property is worth. The goal is to try to entice the lender to accept less than the encumbrances and not have to foreclose on the property and then resell it. The banks are not stupid; they have been around a long, long time. Do you really think that they are going to discount their loan amount to the point where they will let the homeowner off the hook and give you a substantial discount, all the while absorbing more and more of a loss for your benefit? No Way!

2. The homeowner's distress will make you distressed... If you are dealing direct with the homeowners, watch out. Chances are very good that they are extremely distressed over the situation and in turn begin to distress you. You entered into a business deal to try to help yourself to a well deserved profit while at the same time helping the homeowner solve a major problem. As time goes on and their frustration grows due to constant delays and non responsive lenders, the pressure builds for them and you receive the brunt of it.

3. Your very valuable time is wasted... First you have to find the upside down seller's, that's not so hard. Then negotiate a price that will be profitable to you. Not so difficult, unless the seller does a little homework and realizes that their lender will more than likely require that they sign personally for the deficient balance. If their overall plan is to declare bankruptcy, it's no big deal because they won't care about the price, however if they have other assets, etc. they will want to get at least close to fair market value. In addition, if the property is in foreclosure and they consult an attorney during that process, more than likely they will file for bankruptcy protection as it will delay the foreclosure proceedings. Then you have a whole new set of delays and problems to deal with. The lender forwards the file to the bankruptcy department and there it stays until the bankruptcy is discharged or stayed and the foreclosure proceedings continue.

4. Difficulty in obtaining financing... Money for residential investment property is very difficult to secure, not to mention, if and when the short sale gets approved, the current homeowners lender will usually only give you 15 days to close at the accepted price. If you secured the financing at the outset of the contract, chances are that the commitment and/or pre approval issued is void because you are now many months down the line from when you first entered the contract. Plus the homeowner's lender negotiated a higher net amount so you have to rework all the paperwork in a compressed time frame, in a financial market that takes longer to get commitments approved and closed. If you happen to succeed at negotiating a large discount from the lender, you still may fail at closing in the prescribed time frames.

5. In the end you will make very little, if any money with short sales... I've heard it all from every Johnny-come-lately short sale guru. "You'll get rich buying short sales", "it's time to capitalize on the market", "short sales are the only way to go", etc. Nothing could be further from the truth. If you have purchased and/or attempted to purchase short sales, you know exactly what I'm talking about. If you are about to venture in to this arena, despite what you read here, I wish you the best of luck.

Conclusion: Don't waste your time with distressed homeowners and short sales just because we are in a recession. There are tremendous opportunities to invest in Real Estate right now and they have nothing to do with short sales. As an Investor with over 25 years experience and someone who has owned 100's of properties I can tell you with confidence that the current path to wealth in Real Estate is buying apartment buildings and large multi family projects. America is downsizing its lifestyle and moving to smaller, more affordable housing alternatives and the funding is there for us investors to make the purchases. I urge you to look into this; you will be amazed at the results. One tenth the aggravation of short sales and ten times the profit.

Joe Florentine is managing member of US Apartment Financing and an accomplished Real Estate Investor with over 25 years experience. He has been featured in financial magazines, TV and many newspaper/print/Internet publications. He has recently entered a joint to teach high leverage financing techniques to help Real Estate Investors acquire large multi family projects. To learn more visit: http://www.learncommercialfinancing.com

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