I am new and I understand how short sales work. I have a few short sale investors who have agreed to work with me where I find good prospects and do the research and if the property is short saled I get a portion of the profits.
But after I find a motivated homeowner in foreclosure, I need to know how to recognize a good short sale deal. When I look at the numbers, how can tell if it is a good deal? Please advise.
Linda,
Thanks for your question. I think many first time investors struggle with knowing what is a good deal and not so good deal.
I try to work backwards… First I need to determine what the value of the property is and at what price I can move it quickly. We do this by looking at comparables in the area. We need to talk to a real estate agent, get their opinion. We need to know how many houses have sold in the area in the last 6 months. How many days they were on the Market. (DOM). Because we are not in the business to hold these properties. We want to find a buyer to flip it to. Once I get to the number I know I can sell it quickly, then I begin to work backwards.
You can tell if it is a good deal if you can turn around and sell it quickly, under market value (which you just determined) and still make a nice profit.
Typically we tell our students never to buy anything above 70% LTV if it is a fixer upper. If it’s a nice house that needs no repairs, then between 70% and 80% LTV. Anything higher than that we encourage them to find a different deal. You have to remember, you have to leave some profits in there for your end buyers. This will give you plenty of room so you can give your end buyer a great deal too!