I'm constantly on the lookout for houses to invest in to turn into option homes where I carry the contract for a few years until the buyers can obtain financing and cash me out with a balloon payment. Recently, the REO market (real estate owned by banks) hasn't had many of the types of properties that make good option homes.

So, I went looking at short sales. Homes that the owner is underwater with the mortgage and is asking the bank to take less than what is owed as full repayment of the mortgage.

Reasons Short Sales Have Potential as Option Homes

Short sales often cost banks less than foreclosures. Clearly, the less you can buy houses for the more you can earn converting them into option homes. It took banks some time to realize it's beneficial for them to allow short sales more often than foreclosing on the properties. One reason you can acquire short sales to convert to option homes is that the bank never takes possession of a short sale. They don't have to pay property taxes or maintain it. Now couple that with the fact that the seller won't receive a penny from the sale and you have a formula to buy short sales at a very low cost to turn into
option homes.

Option homes are one of, if not the best, ways to maximize your real estate investing dollars

Some short sale negotiators I know tell me that recently they've had 80% to 90% of their short sale offers accepted. All of this should be telling you that it's time to look at short sales as a source for option homes investing.

Tips for Converting Short Sales Into Option Homes

First of all, don't get bogged down doing the short sale negotiation. You're in the option homes business not the short sale business. Every new short sale requires that the sellers be educated in the process and requirements. Then the seller has to be handheld to collect the needed documentation. And then multiple negotiations happen with the bank. You need to stick with the option homes side of the business and let someone else deal with the short sale.

Not all short sale offers will be accepted, so you want to structure your purchase offers in a way that maximizes the profit and cash flow for your option homes. One way you do this is by requiring the inspection be performed only after the bank accepts your offer. No point in sinking money into the option homes deal until you know your offer will be accepted.

Same thing with any earnest money deposit you make. To maximize the cash available for other option homes deals, you want to put in the minimum cash you can at the front end of a short sale. Even with minimum in, it's reasonable to require that the check not be deposited until the bank accepts the short sale offer.

Now it's time for you to take action by making a few short sale offers to grow your option homes business. But first, you will want to take advantage of these other free resources.

See my article and quick video on Getting Your Real Estate License for Real Estate Investing. Also, take advantage of my Free Book Offer and Video Training for finding motivated sellers to make the most of your option homes investing. There is valuable content in all of these resources I'm providing to you free. By taking advantage of them, your options homes business will prosper.

I hope you enjoy reading my blogs about option homes as much as I enjoy bring information about options homes to you. Please visit often and leave comments below.

Shortsale Investing - Does it Really Work?

I have recently put a few shortsale offers in due to the shortage of REO (real estate owned) / Bank Owned properties on the market.   What I have found interesting is there is not nearly the competition from other investors.  For instance, with all bank owned deals that are any good, they all seem to go to "highest and best".  Highest and best means each person has 1 time to come back and put their best offer in. Then the bank usually selects one of those highest and best offers.  It becomes very competitive and hard to guess what to offer.

Recently I put have put in 4 shortsale offers.  They all got accepted as is, and there were no other offers.  Now I understand I might not get them all, but that is ok.  If I get half of them, I will be happy.  It is like putting a few deals in my pipeline for the future.

A few tips I would like to share when making a shortsale offer:

1)  Try to make your inspection for AFTER the bank approves the shortsale, otherwise you could be spending money on a deal that doesn't ever go through.

2)  Try to make your earnest deposit either very low or not to be deposited until the bank approves the shortsale offer.

These two things have really helped make my shortsale offers easy and risk free.   Now, I will say that a few agents won't allow these, but because I am a real estate agent and know many agents in my area, this has really helped me get these through.  It might be something you have to work through over time to create a proven track record, and you might want to consider getting a real estate license.   See my article and quick video on Getting Your Real Estate License for Real Estate Investing.

What is my exit strategy?  For the most part, I am using a lease option for 1-2 years and then converting to a land contract (seller financing) if they can't get a mortgage.  I could flip some of them or go straight to a land contract, however, I don't want short term or "dealer" status with the IRS. I want to keep the majority of the profit in my pocket and not Uncle Sams.

I have spent some time recently talking to shortsale negotiators and they have shared that 80-90% of their deals are getting approved now.   So is it worth it?  I think so. Consider shortsale investing.