Back in early 2000, housing prices in Tampa and Miami were rising consistently. Being a new investor in Florida, I wanted to capitalize on this opportunity—invest in single-family homes below the market price, rehab them, and sell them with higher upside potential. I was working on every lead generation method in the book to get a hold of distressed properties.
A few visits to the local auctions made me realize that the process of buying foreclosures was a lot more complicated than I had anticipated. I felt things would be less complicated if I could get in touch with the homeowners before the banks did and make a deal. It turns out, I was right.
When I began looking deeper into how to buy a short sale home in Florida, I realized that it also came with its share of challenges. Thankfully, I’ve figured out a way to overcome those challenges and I don’t mind sharing my secret.
How to Buy a Short Sale Home in Florida: 3 Steps
A short sale, essentially means that a distressed homeowner, being unable to pay the mortgage, has gotten the bank to agree that they can sell the property for less than is owed. How does this benefit all the parties involved in the short sale deal?
- For the bank, this means recovering as much as possible from the property’s sale to be paid towards the loan while saving time, resources, and expenses on legally initiating the foreclosure proceedings in Florida—a judicial foreclosure state.
- To a distressed homeowner who has maybe lost their job, this allows them to get out of the home quickly and ease their financial burden. It also saves them from the embarrassment of receiving a foreclosure notice and watching the home go under the hammer.
- As a real estate investor, you benefit from purchasing the house below its market value and rehabbing it to fetch a good price.
So, it is a win-win situation for everyone, right? If only it was so simple. I’ve broken down the process of how to buy a short sale home in Florida in three critical steps.
Step 1: Find a home listed for a short sale
Chances are high that many of the homes you find advertised for a short sale by real estate agents are not approved by the lender. Rather, it is likely the distressed homeowner is hoping for such a deal and has advertised the house as a short sale to receive competitive offers—whether or not the bank has actually agreed. This means that even if you negotiate with the homeowner on purchasing the house, the bank isn’t likely to sell the property at the price you propose, if at all.
Step 2: Do proper due diligence
What is the actual upside potential of the distressed home? You’ll want to evaluate the property and conduct due diligence on unpaid taxes, liens, and other potential complications. Remember that homeowners have likely exhausted all their options before considering a short sale. They may have taken subsequent loans such as a second mortgage or a home equity loan to keep up with the housing expenses.
In such cases, all lien holders need to be convinced to approve a short sale. Each lien holder will process the financial records and independently appraise the home’s true value before approving the short sale. Even if just one lien holder objects, it could tank the entire deal.
Step 3: Negotiate with the bank
In order to avoid a full-blown foreclosure the homeowner needs to convince the bank that they can’t pay off the rest of the mortgage and that they aren’t making any money out of the deal. From there, you are dealing directly with the bank. And who knows what price point they will accept.
If the Florida short sale house was listed by a real estate agent, it’s possible that he/she is the one that set the listing price—not the bank. Those numbers might be based on what the homeowner is hoping to get or it could be market comps. The bank may or may not even be aware of how much it was listed for. So, you need to figure out that fine line between what it’s worth to you to buy and what the bank is willing to let it go for.
Then, be prepared to wait. Unlike the homeowner, banks are not necessarily in a hurry to sell. It can take up to 60 days or even six months in Florida for the homeowner and the bank to arrive at a price that the bank is ready to accept. And, while you wait, all your money that could be working for you in other ways is tied up.
With so many ways for a deal to go sideways, purchasing a short sale home in Florida can be challenging. A better option is to work directly with distressed homeowners who are interested in selling quickly—before they get into a short sale situation.
Get Better Deals Directly From Distressed Homeowners
When I first started investing in Florida, I tried the short sale route for getting leads but when deal after deal had me constantly on hold, I looked for a better way. Now, as an independently owned and operated HomeVestors® franchisee, I have access to a tried-and-true marketing campaign that sends distressed homeowners my way—before the bank gets involved. Through billboard advertisements, commercials, direct mail, and radio, the “We Buy Ugly Houses®” team reaches out to distressed homeowners who are looking for a way out of an “ugly situation.” This leaves me with deals that have more potential upside and minimal complications.
Skip those Florida short sale homes. Request information about becoming a franchisee and get connected with motivated sellers directly.
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