2012 has been dubbed by some as ‘Year of the Short Sale’, with even more short sales expected to be completed than last year. However, are they really a smart move for investors or is investing in distressed property notes a better way to go?
There has been a lot of buzz in the last few weeks about mortgage institutions cutting down on the time it takes to process short sales. Fannie Mae and Freddie Mac have announced new guidelines requiring loan servicers to now make decisions on short sales within 30 to 60 days. While Bank of America has sliced its short sale processing time back to 20 days from 45 or much, much longer via their new, improved online platform.
However, while short sales may be a great deal for sellers and even offer the feeling of nice discounts for those buying new residences or investing in the odd property here and there, they do pose some issues for full-time or more active investors. Let’s take a look…
5 Reasons Distressed Property Notes are better than Short Sales
1. Short Sale Fraud
Banks angry at real estate investors profiting while they take a hit by reducing and writing off principal balance debt have engineered flipping houses which are short sales for profit into becoming ‘short sale fraud’. Whether you agree with it or not, the disclosures and affidavits now required for those involved in short sales pretty much makes it illegal to immediately turn them around for profit. Considering the number of tasks forces and regulators hunting down real estate fraudsters (when they’re not partying it up in Cartagena, Colombia or Las Vegas) it just isn’t worth the risk to even be accused of such a thing.
2. Buying Notes Eliminates Hassles
Buying distressed property notes gets rid of a lot of hassle that comes with acquiring short sales. Besides the bizarre and trying upfront paperwork and negotiations short sales can come with big property management headaches and even tougher problems for those buying into the new fantasy breed of REOs to rentals on offer.
3. Reducing Costs & Risks
Investing in distressed property notes means slicing out soaring costs associated with closings, financing and points and rehabbing. Then there are the huge liabilities that can come with these properties as a direct owner which can threaten your investments including personal injury.
4. Resales
Distressed property notes can actually be a lot easier to sell and cash out in any market. A little seasoning and you can pump up their value and if you like cash out just a portion of the payments while retaining the note.
5. Better Bargains
There are good deals to be found among short sales. They may not all be turning in profits but buying a home that was once sold for $6 million for just $2 million can feel great. However, commercial and construction distressed property notes currently often offer even better discounts and bargains as there may be even more of these being held by banks than single family residences. Plus there is far less competition for them.
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