Short-Sale &
Lease-Back Strategy Makes Sense
Trump bails out Ed McMahon using this strategy on a big
scale
By Jules Roman
A Short Sale occurs when a property is sold for less than is
owed on a property. Lenders are increasingly willing to
approve a short sale as an alternative to foreclosure.
Banks are under massive pressure to write this debt off and
avoid taking a property back into their REO department. The
depth of the write off today is staggering. When making a
short sale offer, we use 60% of today’s value as the
starting point. Depending on how much is owed on the
property, this may represent 40% of the loan amount. Some
banks simply cannot afford to take another property back
into their inventory. If our offer is the only offer, they
are likely to take it.
If a homeowner has an underwater loan that is in
foreclosure, there is little that the lender can or will
do. They may put the delinquent amount into the principal
balance and lower the rate some, but there is nothing that
they can do to lower the payment to where it needs to be.
When we buy a home on short sale to lease back to the owner,
the rent payment can be as low as half of what their
mortgage payment was. This is because she home is sold for
less than half of the loan amount. We offer a one year
lease to the client. At the end of the lease the property
will be sold for 90% of today’s value. The client or a
family member has an opportunity to buy it back at that
point. This solution provides a win/win for all parties.
LeaseOptionProgram.com offers these turn-key
short-sale/lease-back packages to investors who want to buy
cash flow homes today at 65 cents on the dollar and sell
them a year later for 90 cents on the dollar. This strategy
does not depend on any property appreciation. In fact,
property values could fall another 10% without affecting the
profitability. Time is growing short for these deals. Once
investor sentiment turns up or the pressure on the banks
lessen, offers at 65% of value will either not be the only
offer or will not be accepted by the lenders. I suspect
that the discount that we enjoy now will begin to shrink
towards the end of the year as investors creep back into the
market. By 2009 we will most likely not be able to get any
discount better than 70 or 75 cents on the dollar.
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Foreclosure Bailout Example
: Short Sale |
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Today’s value: |
$200,000 |
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Payoff of First Mortgage: |
$220,000 |
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Short Sale Purchase Price: |
$130,000 |
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Next Year’s sale price (assuming 10% Decline): |
$180,000 |
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Closing Costs Estimate: |
$15,000 |
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Investor Profit: |
$35,000 |
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|
|
|
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Client’s Current Monthly Payment Now: |
$2,000 |
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Client’s New Monthly Rent Payment: |
$1,300 |
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In
this example the client is in foreclosure and is underwater
in his mortgage. Refinance is not an option. We negotiate
the short sale and the investor buys the home for $130K and
leases it back to the client for $1,300 per month – well
below what they are currently paying. This stops the
foreclosure, keeps the client in the home at a payment that
they can afford. The investor now owns the home at a cost
basis well below today’s value. Even if prices fall another
10%, the investor can still realize a great profit when the
property is sold.
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