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Short Sell- Quick Sell
August 2, 2010 7:48 PM   Subscribe

What should I know as a potential first time home buyer looking at buying a short sell property direct from a bank? My parents have happily lived in the same condo/apartment in Honolulu for over 15 years. Recently, a real estate "friend" of theirs said there is a unit in the same apartment which is going for very cheap because it is a short sell... key word is " real estate friend". My parents said it would be a great investment, but they have never been too good with research and finances and drawn in by storytelling of so called friends and sensational people. Are there any tips on what I should watch out for or anything I should know beforehand before plunging into this?

For some background information: I'm 26 with about 100k USD in the bank and the apt in question is 350k USD... and besides getting a mortgage and "investing" in real estate the money's just sitting there doing nothing. I feel somewhat pressured to buy! quick! get a mortgage! because it is a short sell and they say it's so cheap now it's a hot piece. I checked on zillows.com and the apartment has been on the market for 5 months now.

I've been super tight with saving money since I finished college, such as buying a crappy car, budgeting, being frugal to eventually buy an apartment as an investment, but now it seems like if I get a mortgage all the savings will be gone in one swoop and it's a bit scary.

The apartment would be purchased by me and in my name, and brother live in it (a nice to have, not need to have as he lives with my parents know). I'm fine with the idea but there's always buts...





So of course the big questions:


- how much worse is the housing market going to get? I keep reading about double dipping economy and how it's not getting better... so is it even worth it to jump now or wait? Eek

- Are short sell houses even a good deal versus traditional method (which I don't even really know)

- With short selling, is it still beneficial to get a mortgage preapproved or it's the same as going through the real estate agent to set me up with a mortgage

- Looks like I missed out on the First Time Homebuyer Tax Credit of ~8000 USD that ended a few months ago... any idea if that will be revived or it's totally done for?

- for a short sell I've read a bit that it's tough to negotiate because the listing price is roughly about the price of the property... is that true?

- can you ask a bank doing a short sell to refurbish/redo say the bathrooms and kitchen? Or is that only done when you are buying direct from a homeseller

- anything I should keep in mind as extra cost? Such as property tax... I really have no idea!


(as a side note this is doubly confusing because I don't even live in the same state/country at the moment so can't go to a bank or whatever in Hawaii to directly ask these questions... plus not sure if it'll be skewed towards the bank's benefit)
posted by peachtree to Home & Garden (7 answers total)
 
Please don't rush to buy a condo in Hawaii when you don't even live there yet. Don't let a real estate professional pressure you into buying anything. To them, the next real estate boom starts with you!

No one can predict the market but I don't think anyone is seeing a rapid increase in housing prices in the next few years. Be patient.
posted by shew at 8:31 PM on August 2, 2010


All a short sell means is that the bank is selling it for less than the amount due on the mortgage. Short sell means nothing to you as the buyer. Unless the bank is crazy, they will be selling it at whatever the current market value is.

Chances are real good that the first time buyer credit won't be renewed, and if it is, will only apply to owner-occupied purchases.
posted by gjc at 8:36 PM on August 2, 2010


No one can tell you how much worse or better the housing market is going to get with any reasonable degree of certainty; that's like looking into a crystal ball. If you're investing in real estate for the long run, you buy good properties in good locations, you pay less than market price for them, and you're not over-leveraging yourself (that is, using too much debt), then you'll probably do okay. But you really have to know what you're doing.

It's not clear whether you're talking about a short-sale property (where the owner is trying to avoid foreclosure by selling it for less than the outstanding balance of the mortgage), or a real estate owned (REO) property (where the bank has already foreclosed and repurchased the property at auction). A bank-owned short sale doesn't make any sense, because once the bank owns it, there isn't a mortgage anymore.

A short-sale may be a good deal, or a bad deal, depending on whether you are buying at, above, or below a fair market price. Many factors are involved in determining what a fair market price is. Many people are able to buy properties from banks at well below the market price because the bank is interested in quickly getting the property off of its books. Banks don't want to own houses; they want to own mortgages.

Even if the first-time homebuyer credit is revived, you will not be eligible for it unless you are buying the property as *your* home. AFAIK, the credit was not available to investors.

A bank will almost never want to get involved with refurbishing a property. Generally, bank-owned properties are sold to investors who then fix up the property and resell it at a much higher price. Or, they are sold to homeowners who undertake the renovations.

And yes, once you buy the property you will be liable for property taxes, insurance, homeowners association (HOA) fees, and maintenance expenses. If you are renting the unit to your brother, you may have to register as a business with the city and pay a city tax. You will also have to claim the rental income on tax returns.

It sounds like you really don't know much about real estate investing, so there are any number of big mistakes you could make in this process. You should really consult a good, knowledgeable real estate agent about this deal, and find out what the best current real estate investing books are, and read those in detail.
posted by brain at 8:39 PM on August 2, 2010 [1 favorite]


Oh, and if you keep that much savings in cash, you're just paying the "inflation tax".

Keep a 6 months' expenses as an emergency fund in cash and/or a money market account, and invest the rest sensibly and not all in one place. Find yourself a good flat-fee financial advisor (one who isn't selling you financial products on commission) and heed their advice. If you don't know a good financial advisor, ask your friends and colleagues--the ones who are sensible about money, at least--for referrals.
posted by brain at 8:46 PM on August 2, 2010 [1 favorite]


I don't even live in the same state/country at the moment

Which is why you don't need to be playing "teach yourself property investor" at the moment, and you definitely don't want to be your brother's absentee landlord. Who's going to walk away with money from this deal the moment it's signed? The "real estate friend" who knows you have lots of savings? Qui bono? Because there's no guarantee it's you.

Are you willing to make him pay the cleaning/repair bills if the place gets damaged? Will he (and your parents) be fine with paying you rent, or is it likely to devolve into a situation where you tolerate lateness and missed months and end up eating into more of your savings?

If you are definitely planning on returning to Honolulu to live, want to live in the same building as your parents for at least as long as it takes to get a couple of feet firmly on the property ladder, and are willing to cope with all of the additional work that comes with being a landlord, then do the due diligence with independent professionals. If not, then get your money invested somewhere else and stick with what you've planned.
posted by holgate at 10:46 PM on August 2, 2010


Complicating matters specifically for Honolulu real estate, much of the property is leasehold (99 year leases of which you might be at any point in) rather than fee simple. This vastly complicates valuation. I'm a huge scaredy-cat when it comes to real estate investment, and out-of-state, in Honolulu of all places? Tread carefully, and under no circumstances let yourself be rushed.
posted by minedev at 1:27 AM on August 3, 2010


- Are short sell houses even a good deal versus traditional method (which I don't even really know)

>> All a short sell means is that the bank is selling it for less than the amount due on the mortgage. Short sell means nothing to you as the buyer.


Hm, my understanding is that a short sale is still buying from the owner, but with the bank (and other creditors) at the table too. So it's really like buying from a committee, a bit of a clusterfuck. If you're buying it from the bank and just the bank, that's a foreclosed property, not a short sale.

When I was getting advice from real estate agents and looking online, the word on short sales was that they can take a long time to get responses to offers, and even then things can fall through late in the game for no reason intelligible to the buyer. They seemed good if there's a property you like and you have lots of time to wait on it and possibly have to go back to square one when it falls through, less good if your goal is to get moved by [time T].

(This article on short sales seems to back me up a little.)

- With short selling, is it still beneficial to get a mortgage preapproved or it's the same as going through the real estate agent to set me up with a mortgage

Yes you still have to show you can get the money. You don't have to do it through your real estate agent in any case, do you? Look around yourself, ask your bank.

- can you ask a bank doing a short sell to refurbish/redo say the bathrooms and kitchen? Or is that only done when you are buying direct from a homeseller

Banks seem to be keen on not doing a single fucking thing with their properties and trying, as much as possible, to sell them as-is. And I would imagine that during a short sale, no one is particularly in the mood to sink more money into the property, either. If you think it needs $10k of work, ask to pay $10k less.

Just going by what you've said, this sounds like one of those "if it sounds too good to be true" situations.
posted by fleacircus at 2:54 AM on August 3, 2010


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