- Hi everyone, Clint Coons here,
and I decided to cut a video on short sales,
now I know the real estate markets really hot right now,
but there may be a tipping point where certain individuals,
may be walking away from their properties here
in the next several months to a year,
we just never know,
and I want you to be aware of how
to benefit from that,
if there's properties that are available
and banks for taking them back,
by creating the right structures.
So I thought,
let's cut a video on what you should do with short sales.
Okay,
let's get started.
(upbeat music)
Okay, so let me tell you a little bit about,
short sales are properties where the lender
has worked out with the seller,
or the homeowner,
the ability to sell the property at a specific price,
so that typically that price is less
than what is owed on the mortgage,
and when you're working with short sales,
the key here is typically closing on time,
you got to make sure you're gonna close,
and you wanna make sure that the lender
is comfortable with you as a buyer,
when you're coming to the table.
So when I purchase a short sale,
I do it the same way as I would in REO deal,
and if you're not familiar with REO,
those are bank owned properties,
so this is where the bank
is actually taking the property back,
and is now selling the property itself,
when the market crashed last time
I was investing in the Las Vegas market,
my partner and I were doing a lot of flips,
and those flips we were buying directly from banks
are called REO deals,
so what I realized is that when working with banks,
and they're scrutinizing the transaction,
it's oftentimes good to set a structure up
that you know is gonna make them feel confident,
that you're gonna be able to close on the property,
this is all gonna get wrapped up
in a relatively short period of time,
right?
Short sale,
well, actually you're short on cash,
anyways so what do we do with the short sales?
Typically, I would like to buy a short sale,
you have to determine is it going to be a flip,
or is it gonna be a hold,
if you're gonna use it as a hold,
then it's gonna be an LLC.
So if it's going to be a hold,
all right, we're gonna use Limited Liability Company,
if it's gonna be a flip,
then it's gonna be in our Corp,
or maybe in an LLC owned by the Corp,
but if the banks involved in it,
typically I don't like to make it too complicated
for the lender,
because if they have to dig through too many layers
to determine who's involved,
it can screw up a deal like this,
so, if I was gonna buy a hold,
let's say I'll just use the LLC, for example,
and I have this seller over here,
that's involved in a short sale with this piece of property,
what you wanna find out is,
does the bank have any due date on that,
where the deal has to close by a certain period of time,
because that's gonna be important
in order to make this come together,
oftentimes I've seen it where the bank say,
we'll tell the seller you have 45 days,
we'll keep this short sale offer open you for 45 days,
so that makes the seller motivated
to get that property sold,
which can, you know, help you as well
to find that motivated seller,
but then I've entered into the agreement with my LLC
for this hold to buy this short sale,
now, if you're buying for cash, all right?
If you're gonna buy this deal for cash,
then I suggest that you have the money inside of the LLC
to buy for it cash,
so you have what it is referred to as,
well, I wouldn't call them season funds,
but they're traceable funds is what it comes back to.
Similar to REO deals,
what happens is that many times,
and I fell into the same trap myself,
I would be down here,
and I would set up an LLC to buy from this bank,
a piece of property,
and I had another entity set up over here
that had my cash in it,
and so what I would do
is enter into an agreement with the LLC,
the LLC to the bank,
and the money would come from myself,
so I distribute money myself and I pay the bank here,
and the bank declined it, that it said,
"no you got to close your own name,
"they would trace the funds."
So when you're buying a short sale transaction,
I would put the money inside of the LLC's bank account,
get the money in there,
so if it's gonna be for the down,
whatever it is,
however you're structuring this deal,
make sure that money is originally coming from the LLC,
that plans to close on that property.
And then again, if you're buying for cash,
all that cash should be in there,
so the bank can then trace it,
the next thing is that when you're closing
you have to make sure you're gonna meet that deadline,
because if you can't meet the deadline,
then that can throw this short sale off for the seller,
and here's the risk,
if you don't meet the deadline,
because let's say you couldn't get your money together
because you're putting together a short sale
where you intend to bring in another fund,
or maybe a gap funder to bridge the difference
on this deal that you're buying for cash,
and they can't get you the funds
available in time because their money's out on another deal,
I've seen this happen to a client before,
so, you're short 70 K here,
because this gapper over here can't get you the money,
so you end up just walking away from this deal,
bank over here, all right?
They get upset,
because they couldn't close,
so they pull the deal from the seller,
now the seller is involved in the situation with the bank,
where the bank comes after them for a deficiency judgment,
because the guy didn't sell the property
within that period of time that they prescribed,
they move forward with the foreclosure procedure,
that's all gonna roll downhill,
and so what could happen,
and again, I've seen this happen,
the seller now because you failed to close
brings an action against you, all right?
For failure to close,
so why are they gonna bringing an action against you?
Because you were aware of the fact
that this was a short sale,
and you didn't close and it was a result of you not closing,
it costs that seller money via the deficiency judgment,
so, by putting that deal together in an entity,
like a limited liability company
making your offer in the LLC,
what you're doing is this,
you're minimizing personal risk exposure,
don't make an offer in your own name
to put this deal together,
unless you're gonna use traditional financing,
and if that's the case, well, that's fine,
if we're going the traditional financing route,
but if you're buying for cash,
then you got to make sure,
you know, if you're using a gap fund
which is more riskier,
if you're bringing someone else into the deal,
always use an LLC so if it goes south,
you don't have personal liability back to that seller
should they decide to sue.
Short sales can be a great way to pick up deals,
really good deals by working with motivated sellers,
but there is some risk there,
so make sure you're using your entity,
to put that deal under contract,
and close in the name of the entity.
All right everyone, take care.
(upbeat music)