Make Money Buying and Selling Short Sales

The first way I d like to share with you on how you can profit humongously in the current real estate market is by buying Short Sales.

In a normal, i.e. traditional, real estate transaction the seller puts his/her property on the market to make a profit. Very rarely would a homeowner, who loves his home, put it up for sale for less than the amount of money he/she owes on the property. In a normal sale, there is always equity in the property that the seller is putting on the market. A Short Sale, on the other hand, is the exact opposite of a normal sale. In a Short Sale, the seller is in distress, facing some sort of hardship. These days, that hardship may include the very stress of owning a property and owing more on it than its current value.

I witnessed the craze that went on in the real estate arena back in 2005 when I just started doing real estate part time. I had witnessed the difficulty of buying a home in the Bay Area even in 2004 when I started to look for a home in the tri-cities of Fremont, Newark and Union City. It appeared as though my agent had to beg the sellers whose homes we visited. He had to tell them what I did for a living, how much I made and what a nice person I was. After several days of searching, we finally got a 3 bedroom, 2 bathroom home for me by the lake in Newark. It was listed for $499,000. My agent persuaded me to offer $535,000. I agreed and gave him Earnest Money Deposit. Weeks later, he handed me the keys and a check for $2000 from escrow. I do not quite recall the exact details but I believe I had acquired that home with no money down. Those were the days when money was so easily available especially for people with middle class jobs and great credit scores.

Those were the days when your phone would ring off the hook, calls from mortgage brokers. Even though I had bought the home at an inflated price and with no money down, these callers were all telling me that I had equity in my home. Around August 2006, I succumbed to their incessant calls and had my loan refinanced from a fixed rate to an Option ARM. Countrywide was my lender.  If I recall correctly, they did a cashout refinance for me.

Looked like everyone back then was trying to give you money; the mortgage brokers and their counterparts at the banks. All you had to do was own a home (for refi purposes), have a job and/or good credit to purchase a home. I remember walking into a Washington Mutual branch near my home. The branch manager offered to look at the value of my home. Looks good, he said in his usual soft tone. Let me look at your credit score. My score back then was stellar, more than 750. The bank manager asked me if I needed money. I had equity in my home, he told me. How much do I qualify for? I asked him, intrigued. He looked into his figures on his computer. I can give you $76,000.

$76,000 just like that! I gave him the go ahead. Five days later, the funds were ready for me to use as I so pleased. He ordered a drive-by appraisal and the values were good, he said. He advised me to move the funds into my checking account and lock the rate, which he thought was a good thing to do. Weeks later, the guy offered to increase my Home Equity Line of Credit (HELOC) to $207,000.

This guy at the bank was good at dishing money out to people like me who had good credit and a home. I wonder how many clients he got this way. What I do know is that he did well and Wamu rewarded him with a handful of awards.

Banks are in the business of lending money, so the more money he succeeded lending out the higher he climbed up the corporate echelon.

I would not be surprised one bit if the banks were labeled as the chief architects of the collapse of the economy. Like many Americans, I believe this bank manager had no clue where the real estate market was heading at the time and how it would take the entire economy with it.

Soon, values for the houses on which these bankers were lending homeowners money started collapsing like dominoes. In some parts of the USA, and including Northern California, some of those values dropped by as much as 65%.

The collapse of this market has created a new arena for real estate investors. Unlike the REOs where banks have already taken back the property and bribed or evicted the occupant, in Short Sales situations, more often than not the homeowners or tenants are still living in the home. Whereas REO transactions can be closed in days, Short Sales can take weeks, even months to close. However, what looks like a disadvantage to the average people, Short Sales offer a gold mine to the savvy investors.

In 2009 REOs dominated the market. We saw more Short Sales listings in 2010. Expect to see more Short Sales in the years to come.