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How to Invest in Real Estate Without Money: A Look at Short Sales

Many people read about how to start investing in real estate, but are not yet informed enough to go out and start investing. I’m going to spend the next few minutes telling you how I started investing in real estate when I was just eighteen years old. I am now twenty-three years old and have completed fifty agreements in the last five years.

There are three types of investment techniques that you can get started with without using money. They are wholesale, subject to and short sale. I used all three techniques when I started investing. However, all three of them were extremely challenging in their own way and I made a host of mistakes that could have easily been avoided if I had had the proper guidance. I’ll go over one of the techniques I used below to help you better understand the process.

Short selling is a great way to help people in urgent need of financial help and also a way to earn a substantial amount of money.This process is certainly a win-win situation and can make you quickly understand why this business. It is so cool.

A short sale is a process by which a mortgage company takes a discount on a loan that is in default (foreclosure) to avoid having to go through the foreclosure process and obtain ownership of the property. A foreclosure costs the bank a lot of money and in the end you always lose. There is an entire department called the Loss Mitigation Department in the bank that mitigates losses for the bank and works with clients to complete short sales. This is where you, the investor, can negotiate huge debts and, in essence, create money out of thin air.

You can use this process to help someone who is in the pre-foreclosure stage. If someone is in pre-foreclosure and behind on payments, they are a perfect candidate to work with you. At this point, most of the people in this situation have recently had something major happened, be it a job loss or an adjustable rate increase. Your job as an investor is to help these people get out of this situation and make a profit while doing it.

Begin by evaluating the property to determine the present value and balance owed to the mortgage company. Once you determine some basic values, you are ready to begin negotiations with the mortgage company. You offer the bank an amount that you think is a good enough offer for the bank to accept, and it is still low enough that you can sell the property and make a profit. For example, if the owner owes 150k on the property and, as is, you believe the property is worth 125k (the amount you think you can sell it for), you would offer the bank approximately 100k. This is a completely realistic scenario and I get deals like this accepted on a regular basis.

Once you are in the negotiation process and the bank receives your offer, they will submit a BPO or “Broker Price Opinion” to find out what the value of a local agent is. At this point, you will meet the agent and explain what you are paying for the property and that you hope to be able to help the seller. The catch is that even if the BPO returns to the bank at a higher price than your offer, they will still accept about 82% of that value. This is the magic number for most banks, however some may have guidelines that require a slightly higher percentage.

Now while this whole process is going on, you need to find a buyer. This can be a bit tricky in the way of doing it. I personally use the local MLS to list my properties. I take ownership of the property at the beginning of the short sale process through several different methods. I have the title as collateral and I put the property up for sale pending the approval of the short sale. By doing this, I locate a “final buyer” who will purchase the property from me.

All of these things can get a bit complicated and confusing if you’ve never done it before, but once you have this process, there is a lot of money to be made. This is the only way I’ve seen that you can actually make a profit from negative actions.

I hope this has helped you begin to understand the process of a short sale.

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