Joe Capote – Certified Investment Agent Specialist Expert in Real Estate Investments and Properties

Should you pursue a short sale as a real estate investment?

A lot has been made out of short sales over the past couple years. With the federal government’s implementation of the HAFA (Home Affordable Foreclosure Alternatives) program, short sales have become more streamlined, adhering to a federally regulated process, procedures and timeline. This has made them easier to close.

Sellers and buyers are more familiar with the concepts of the Short Sale, perceiving the short sale as less a less risky and better understood transaction.

And investors have seen them as good options for possible long and short-term investments. First time and rehab/resell investors have seen short sales as a boon to their investment portfolios, identifying them as good opportunities and moving on them.

Most primary residence homebuyers in today’s market are looking for perfection, or as close to it as possible. Falling real estate prices and good inventory have given qualified and motivated homebuyers the ability to pick and choose the homes in the best condition with best upgrades at a fair price. Homebuyers are willing to entertain the idea of a short sale, given they are getting better value for their dollar than they would in a regular sale.

For the rehab/resell investor, a short sale can present an opportunity that wouldn’t otherwise be seen on other markets. For example, the majority of short sales require some level of work in order to prepare the house for market for the resell. This allows the rehab/resell investor a good opportunity to find a home needing rehab at a good price. It also means the competition to buy the home is low.

The first time investor may find a short sale in good condition, requiring only minimal work. Depending on the neighborhood, rental market and other factors, short sales offer a good way avenue for first time investors to add a real estate investment to their overall portfolio while finding good value on the market.

As with all real estate investments, the overall investment package must make sense. For the first time investor who is planning on holding on to the property, the market rent and cash flow must justify the initial investments in acquisition and rehabilitation of the property. The investor needs to understand how long it will take to recoup the initial upfront cost and be comfortable with it.

For the rehab/resell investor, the acquisition costs and the rehabilitation costs are a key element to determining if the investment is a good choice. Both acquisition and rehabilitation must be factored into the purchase price. Also, the rehab/resell investor must understand the current market enough to know what the home will sell for after rehabilitation. Finally, the investor must be able to factor in the off market costs – how much is costs, per day, to own the property while renovating and selling. All these factors weigh heavily into the choice, as the investors generally would like to see a 15% return at the end of the transaction.

There are downsides to short sales. First, there is nothing short about a short sale. A short sale can add an additional 45-90 days to the transaction, depending on the lenders, any liens, and whether or not it qualifies for government programs such as HAFA. Secondly, short sale transactions are more likely to fall though, as they require lender and lienholder approval. The offer price of the short sale may not be the actual sale price, when all is said and done.

Short sales can be a good opportunity for real estate investors. But,with all investment packages, must make sense for the investor in terms of price, initial cost and return.

Are you interested in learning more about San Mateo County /San Francisco real estate and investments?  Contact me for more information.