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