New Jersey has announced it will start selling off homes for as little as $1. Along with states like Ohio and New York, which are again working to get ahead of blight in the form of abandoned homes, it seems more distressed real estate is coming down the pipe for investors.

While many of these house deals require substantial repairs and may be reserved for retail home buyers, investors can expect more inventory to become available this year.

Distressed Debt And Real Estate Deals Are Building Up

It’s no secret that credit card, auto loan, and other debt has been deteriorating in performance, with a mountain of nonperforming debt that has been growing for several years.

As consumers run out of money, savings, credit lines, and find it harder to get new jobs, this will almost inevitably turn into more nonperforming debt sales, and REOs.

In fact, one economist has predicted there will soon be $1T in defaulting real estate debt to contend with.

Buyers have become more cautious, and as the Fed still hasn’t begun cutting rates, they are unlikely to swarm the market or be eager to pay recent market rates.

Get Smart

Many real estate investors in the current market do not have experience with the types of transactions that were popular in the last great recession. It’s a smart time to educate yourself about these types of deals, so that you can embrace them.

This includes REOs, short sales, and various forms of alternative and creative financing. Including using transactional funding to wholesale real estate.

You should know who the parties involved are, what their processes and timelines are, and start building the right relationships now.

Making Successful Real Estate Purchase Offers

What does it take to get offers accepted in this environment?

Fast closings are critical to sellers. Many are under a lot of pressure, and will lose their properties if they don’t sell on a tight timeframe.

Simplicity is key. Buyers can’t afford to be tied up in lots of contingencies. They don’t want long inspection periods, appraisal contingencies, and the like.

Finally, they will prioritize offers from qualified buyers with proof of funds, and who they can be confident in to close.

New data reveals more than 10 million distressed homes that could be ripe for US real estate investors…

Even though some real estate investors say they have been feeling the pinch from fast rising property prices and a lack of inventory, there are many more distressed properties out there than many can fathom.

While US home equity has been racking up hundreds of billions of dollars in positive gains many US homes are still deep in distress. According to National Mortgage News there were around 5 million underwater homes in America in mid-June 2015. But that’s only a small part of the story. CoreLogic data shows 85% of homes under $200,000 are still underwater!

Think that’s a bigger number? Then add another 20% of mortgaged US homes, or just shy of 10 million homes that have less than 20% equity. These represent homeowners that are also in a tight spot. Between Realtor commissions, taxes, closing costs, pre-payment penalties, back interest and fees, HOA and condo dues, code enforcement violations, property taxes, and marketing expenses most of this group may not be able to sell conventionally either.

Want MORE deals? Check out the 50% to 74% rise in bank owned REOs revealed in this real estate blog post. Then ice that with fresh new residential and commercial mortgage delinquencies. And then there are all the properties that are not mortgaged, but are in distress due to property condition, divorce, past due taxes, and more. 10 million is just a small piece of the pie.

US banks just got slammed with new regulations in June 2015 too. Some of the biggest have finally found that skirting their obligations to help homeowners, grant short sales, and approve real loan modifications has caught up with them. In some cases this means they are banned from increasing their mortgage loan portfolio size. That means they have to shift bad loans and old loans off their books in order to make new ones and make more money. That’s a whole new world of motivation for banks to help investors buy these properties.

There may be some negotiating, and creative deal structuring and financing to be done, but it’s unlikely we’ve seen opportunity this big for US real estate investing since the days of the pioneers heading west.

 

Authored by Best Transaction Funding BestTransactionFunding.com is the leading source of transactional funding and hard money loans for real estate wholesalers in the US, where 100% financing, and saying “Yes” is what we love doing all day long.

Real estate investors looking to lock in the best deals on short sales will find arming themselves with the following facts ideal for signing up hesitant sellers and the best properties.

While short sales may not always be ideal for flipping real estate and investors need to be careful not to get involved in what could be considered ‘short sale fraud’, these properties do often offer some of the most significant discounts. On top of this they also frequently provide far more protection in cleaner titles and homes which are in much better condition than other types of foreclosures.

Unfortunately, despite short sales normally being the best option for most underwater homeowners many are paralyzed with fear of taking any action or resistant to any offers to buy their homes. Armed with the following facts investors should be able to break down these barriers and negotiate the best prices on short sales. This can be done when making an offer or used to set up the offer through direct mail or email.

6 Reasons Homeowners need to do Short Sales Now:

1. Credit Implications

While the effects of a short sale on credit scores has been debated credit bureaus and modeling agencies including Fair Isaac and Experian have recently broken their usual silence to explain the effects of mortgage delinquencies on credit. Among these releases they have commented that those which opt for short sales and for which lenders report no outstanding delinquency may see a less significant drop in credit score and a faster rebound.

2. They Can Buy another Home Sooner

Depending on the details of the short sale homeowners can qualify to buy a new home within a couple of years or even right away. With rents raising quickly across the country it may soon be far cheaper to buy everywhere.

3. Minimizing Taxes

The Mortgage Forgiveness Debt Relief Act ends this year meaning homeowners opting for short sales after 2012 could be hit with incredibly huge tax bills. On top of this there are billions of dollars in other tax programs ending at the end of this year which could multiply this effect.

4. Expiring Payout Offers

Many lenders have been paying out tens of thousands of dollars in cash incentives for homeowners to complete short sales on top of mortgage forgiveness. Unfortunately, as with Bank of America’s offer of up to $20,000 which ends in August 2012 other programs are likely to fade away too, meaning no money for relocation and potentially still owing on the mortgage after the bank has seized the property if short sales are not completed in the next few months.

5. Buyers are Interested Now

There are interested buyers and investors like you in the market now but as mortgage interest rates and home prices raise it will be far less attractive to buy and fewer individuals will qualify for loans. Waiting could make it much harder to sell.

6. Faster Processing Times

Right now lenders are speeding up short sale processing times and armed with transactional funding investors can close very quickly.

Have you been making big profits from flipping short sales? They could be about to disappear!

Flipping short sale properties has already been steadily becoming more difficult with banks attempting to eliminate what they call ‘short sale fraud’ and adding tons of new documents and affidavits to closing packages. However, real estate investors using transactional funding for fast flips of these steals have even more reason to question how long they will still be around.

Mortgage giant Fannie Mae has reportedly been sabotaging short sale deals in progress by offering sellers thousands of dollars to execute a deed-in-lieu of foreclosure instead. Many hungry for the cash are obviously jumping on the opportunity.

Recent reports by lenders also show an incredibly low level of interest in short sales from those whom they have been offering up to $20,000 to do them.

On top of this new government and bank plans to stem foreclosures through further relaxing of refinancing requirements, turning properties into rentals and auctioning off bulk REOs could further deflate the motivation to entertain short sale requests from borrowers.

So is this the end to the free ride on short sales? Not likely. The tax break to offset deficiencies in payoffs is set to expire next year but this could well be extended. Plus, short sales have been around a lot longer than most people think. Lenders have often used short sales to unload unwanted loans and homes, even during the recent boom years.

So short sales will still be possible but it is wise for real estate investors, especially those who are flipping houses to diversify their sources of distressed properties now in order to maintain volume and cash flow. Try looking further back on the chain and figure out how to catch pre-foreclosures before they even happen.

‘Shadow inventory’ is a term being thrown around more and more in the news. Is it something that real estate investors should be worried about or is it just more scaremongering?

Shadow inventory are the properties that banks have foreclosed on or which are being foreclosed on and are not currently actively listed for sale. Some have come out in the news proclaiming that this additional inventory potentially threatens to further damage the housing market and weaken home values due to over supply.

Currently there are around 3.5 million properties for sale in the US and we are on track to see approximately 5 million units sold this year. Not a bad ratio at all. This puts us at about 9 months worth of inventory or 3 months more than were we would like to be at in a healthy real estate market.

Right now we are on the right path but the worry is that more homes coming on the market could skew the picture. Some have thrown out numbers as high as an additional 3.5 million properties which could come up for sale. However, when you actually dig into these numbers they are based on a lot of assumptions and not what is likely to happen. The banks certainly are holding a lot of additional inventory which is slowly making its way on to the market. This is actually smart for them to do strategically and will be great for real estate investors as controlled release will keep values up yet continue to provide bargain priced wholesale properties for several years.

However, many of these news articles are trying to count homes which have just fallen delinquent on their mortgages or have just received a notice of default. Note that this can happen on properties which are just 30 days late on their loans, leaving plenty of time for homeowners to catch up on their payments. Many more of these homeowners are likely strategically defaulting in order to motivate lenders to grant them loan modifications and have no intention of letting their homes go. Others will sell quickly as short sales especially with banks like Wells Fargo no openly offering $10,000 to $20,000 to homeowners to hand in their keys amicably.

So the bottom line for real estate investors is that there will continue be many deals to be done and that ‘shadow inventory’ is probably not as big a threat as some sensational headlines would like to make out.